Cashflow control for pension portfolio hedges

PROBLEM: Pension funds in Europe are continuing to increase their exposure to overseas assets, in a continuing effort to improve portfolio diversification. One of the problems this brings is the increasing exposure to currency movements, which has been called the ‘return-free risk’. This is because in the long-term, there can be no return from currencies in general, since for each currency that goes up, there has to be one that goes down. But exposure to currencies certainly brings short-term