FX management
Efficient management of currency risks
Sophisticated currency management not only protects against exchange rate risks, but also enables targeted utilisation of market opportunities. FX Overlay helps institutional investors to stabilise their portfolio returns and meet regulatory requirements. Through a targeted separation of asset and currency management, FX Overlay enables more precise management of overall portfolio risks.
Our FX overlay approaches for your hedging
Passive FX Overlay
- Predefined, rule-based hedging strategy with fixed hedging ratios.
Active FX overlay
- Dynamic management of the hedging ratio, adapted to market movements.
- Combines strategic and tactical elements for a comprehensive hedging strategy.
We are the partner of institutional investors when it comes to FX risks. According to their individual specifications, we hedge these in customised active and passive currency overlay solutions.
Investor benefits of currency management
Mandating an fx overlay expert has many advantages for investors. This expert oversees and manages all currency issues for the investor. However, the quality and range of services offered by an fx overlay provider can vary considerably. While some providers only offer standardised hedging, holistic currency managers integrate both strategic and tactical measures for optimal portfolio hedging.
FX overlay as a customer-orientated holistic currency management solution
A central point of contact
As a specialist, 7orca takes on all currency-specific issues and enables efficient management of currency risks for institutional investors.
Flexible adaptation to investor needs
Dynamic management of hedging strategies in a volatile market environment.
Exposure management as the basis
Precise exposure management is crucial in order to manage FX overlays effectively. The continuous analysis and adjustment of net currency positions ensures that hedging measures are always in line with current market conditions and the individual requirements of the investor.
Cost efficiency & transparency
Netting effects reduce trading costs, while detailed reporting ensures traceability.
Value-added components in currency management
Institutional investors benefit from an FX overlay, the established strategy for actively or passively managing foreign currency risks, on various levels. For example, an FX overlay helps to stabilise portfolio returns and meet regulatory requirements. The appointed FX overlay expert oversees and manages all currency issues as a central point of contact. The transparent and optimised structure created by the holistic currency manager allows the currency manager to adjust the currency positions quickly and efficiently at any time - be it due to market changes or new regulatory requirements. At the same time, central liquidity management enables cash holdings to be minimised and trading costs to be optimised.
An investment in private assets, for example, offers attractive return opportunities and diversification benefits, but the associated currency risk is often underestimated. European investors in particular, whose funds are invested worldwide, have to deal with exchange rate fluctuations.
As a holistic currency manager, 7orca offers the basis for customised solutions tailored to individual client needs with the service areas listed below.
Passive Currency Overlay
Passive FX hedging constantly protects your portfolio according to a defined hedging level, with cost-effective optimisation enabled by 7orca's tenor management.
Exposure Management
Deduction of the FX exposure to be hedged
The exact identification of your FX exposure is a daily recurring process. We start with the inventory by taking the currency exposures of the daily holdings.
The characteristics of liquid and illiquid asset classes play an important part. We exclude assets and portfolios whose currency risks are not to be hedged.
Deviation bands an netting effects
Specified deviation bands are used to contrast transaction costs with the expected risk contribution. This allows us to limit transaction costs to an economically reasonable level.
Netting effects are captured by consolidating the FX exposure of all currency pairs across the segments, funds and FX regions trading the netted FX exposure.
Synchronisation of currency hedging and procurement
To further reduce market price risks and transaction costs, 7orca synchronises spot transactions in the underlying investment portfolios with the hedge adjustment in the overlay portfolio.
This allows us to eliminate FX risk immediately and cost-effectively at the time of its occurrence.
Implementation
Choice of instruments
With regard to the choice of hedging instruments, 7orca is not subject to any restrictions and uses the instruments that are most efficient under the given framework conditions.
These include both forwards and exchange-traded futures. In each case, we use only highly liquid and linear instruments.
Best Execution
Die Ausführungsqualität leistet einen wesentlichen Beitrag zur Gesamt-Performance eines Currency Overlay-Mandats. Daher legen wir einen besonderen Fokus auf den Execution-Prozess.
Implementation project
We confidently roll out currency overlay solutions within a structured implementation project to ensure a smooth mandate set-up.
In close collaboration with the client, we define milestones and set the schedule. The steering committee and the project group regularly exchange information about the implementation progress.
Counterparty management
Monitoring and managing counterparty risk is an essential part of our currency overlay programme.
When concluding forwards, the customer enters into a counterparty risk against the FX brokers. Default risks arise from the sometimes considerable fluctuations in the market value of the FX forwards.
7orca monitors counterparty risks continuously and repeats the detailed broker due diligence on an annual basis.
Liquidity management
7orca centralises liquidity in the overlay segment instead of a decentralised holding of liquidity for FX hedging by individual underlying investment managers in the respective underlying segments.
We have established efficient processes so that the average liquidity holding in the overlay segment can be kept as low as possible.
Structuring mandates
Based on the characteristics of your investment vehicles, the allocated asset classes and the desired hedging, 7orca develops your optimal mandate structure.
In doing so, we choose what is the most efficient and cost-effective structure for you. At the same time, we avoid over-complexity in the design of the overlay segment.
The foreign currency exposure to be hedged is aggregated across all asset classes and sub-segments.
Information management
FX report and data feed
We adapt the scope, content and level of detail of the performance report to your individual needs. 7orca offers to visualise the individual segments' performance attribution as well as the performance attribution relative to the defined benchmark.
If required, 7orca can also prepare a cash flow forecast. In principle, we can provide this information in all common data formats.
Individual key figures can be automatically transferred to your management system via an interface.
Further details
FX overlay – Systematic management of existing currency risks
Foreign currency risks are an often undesirable but unavoidable side effect of an internationally diversified portfolio.
In our NEWS & INSIGHTS, we provide you with a detailed overview of how currency risks can be managed using currency overlay strategies.
Structural advantages of an fx overlay
FX Overlay Management
7orca is your partner in FX matters
We are your sparring partner for your currency risks. With more than 20 years of experience in FX management, 7orca places its professional expertise at the centre of its activities for its clients.
A state-of-the-art IT landscape, proprietary investment processes and integrated software ensure an efficient risk management solution that is consistent with its characteristics.
As an independent asset manager, we select the most suitable implementation for you, without any conflicts of interest.
Please feel free to find out more in a personal conversation with us.
