FX Liquidity Strategies for Australian Superannuation Funds

Effective liquidity management is critical for Australian superannuation funds as they continue to expand their global investment portfolios.

Offshore allocations by Australian superannuation funds now exceed 47% of total assets under management (AUM) and are expected to rise further. 

The Reserve Bank of Australia (RBA) estimates that foreign exchange (FX) hedging books could more than double in size over the next decade, from their current approximately $500 billion, making liquidity risk a central challenge for the industry.*

This paper explores key liquidity management solutions, including extending the tenor of FX forwards, optimising collateral usage, holding excess cash, reducing FX hedge ratios, and introducing cross-currency basis swaps. It also examines differentiated hedging approaches for public versus private assets, given their distinct liquidity profiles.

Over the past 18 months, the IFM Investors Treasury team has actively engaged with superannuation funds, asset consultants, and regulatory bodies to address emerging liquidity risks and discuss practical solutions tailored to the evolving needs of the sector.

Ultimately, a well-structured liquidity risk framework should incorporate robust governance, regular stress testing, and proactive engagement with counterparties and regulators. By diversifying liquidity management strategies and tailoring them to portfolio needs, superannuation funds can help to build greater resilience and continuity through periods of market dislocation.

Footnote (*) Andrew Hauser, “A Hedge Between Keeps Friendship Green: Could Global Fragmentation Change the Way Australian Investors Think About Currency Risk?”, speech at a function hosted by CLS Bank International and NAB, Sydney, 16 September 2025, Reserve Bank of Australia.