7orca Holistic FX Overlay – strategic and tactical management of a diversified currency portfolio in the context of the asset portfolio.
Strategic. Tactical. Portfolio-related.
Holistic FX Overlay is aimed at institutional investors that do not merely seek to hedge currency risks, but wish to assess them as an independent management layer within the overall portfolio.
The approach combines strategic FX allocation and tactical risk management. The starting point is a Basic reference benchmark as the neutral point of reference. Building on this, strategic hedge ratios are derived for each currency and supplemented by model-supported tactical management.
The objective is holistic currency management that brings together portfolio characteristics, risk budget, regulatory constraints, liquidity and the market environment within a consistent management logic.
Assess. Differentiate. Understand.
FX Management in a portfolio context.
Holistic FX Overlay differs from Passive and Active FX Overlay through its broader management approach.
Passive FX Overlay efficiently implements defined hedge ratios. Active FX Overlay dynamically varies hedge ratios relative to a benchmark. Holistic FX Overlay goes one step further: it determines strategic hedge ratios in the context of the underlying asset portfolio and combines them with tactical management.
Holistic FX Overlay is particularly suitable for investors that do not consider currencies in isolation, but seek to manage them in interaction with asset classes, risk budgets, liquidity frameworks and governance.
Understanding the portfolio,
deriving the benchmark.
Currencies as a separate management layer.
A diversified institutional portfolio contains currency risks across different asset classes, fund structures and investment vehicles. The impact of these currencies depends not only on the exchange rate, but also on the underlying asset portfolio.
Depending on the portfolio context, currencies can have a risk-enhancing, risk-reducing or diversifying effect. For this reason, Holistic FX Overlay considers not only the isolated FX exposure, but also the portfolio characteristics, the volatility of the underlying asset classes and the economic function of the respective currency position.
This creates a strategic starting structure that assesses currency risks in the context of the overall investment portfolio.
Defining the starting point,
ensuring governance.
The Basic reference benchmark as the neutral starting point.
The Basic reference benchmark forms the neutral starting point of the Holistic FX Overlay. It serves the long-term orientation of the mandate and creates a transparent basis for measuring strategic and tactical management.
Its derivation takes into account key institutional questions
- Risk-bearing capacity
- Currency structure of liabilities and portfolio currency
- Role of currencies in the portfolio
- Liquidity and collateral requirements
- Governance structures and decision-making responsibilities
7orca supports institutional investors in systematically assessing these parameters and deriving a robust initial benchmark as a neutral reference point for further management.
This means that currency management is not developed from an isolated market view, but derived from the risk budget, portfolio context and mandate objective.
Developing strategy,
managing allocation.
FX strategy process for each currency.
Based on the Basic reference benchmark, the FX strategy process defines the strategic FX allocation. A strategic hedge ratio is derived for each currency.
The process takes into account the macroeconomic environment, portfolio characteristics, client-specific parameters and the specific features of individual currencies. The strategic allocation is reviewed regularly in order to assess changing market conditions and portfolio structures.
The deviation from the Basic reference benchmark forms the strategic management contribution.
From currency universe to hedging strategy.
Holistic FX Overlay uses a multi-stage filtering process to derive a consistent hedging strategy from a broad currency universe.
Using models,
condensing signals.
Tactical risk management.
Tactical risk management complements the strategic currency allocation with market-adaptive management of hedge ratios.
Management is based on systematic quantitative models. These models analyse different market information, identify trends across various horizons and translate aggregated signals into a tactical adjustment of the hedge ratio.
The tactical component remains within the mandate-specific framework and complements the strategic orientation of the Holistic FX Overlay.
Measuring contributions,
creating transparency.
Reporting in the strategy process.
Holistic FX Overlay requires reporting that differentiates between strategic and tactical contributions.
In addition to currencies and asset classes, the focus is particularly on the Basic reference benchmark, the FX strategy process, the tactical overlay and the overall strategy. This makes visible which contributions arise from the strategic allocation, tactical management and the benchmark structure.
This transparency supports investment, risk and governance processes and creates a transparent basis for the ongoing assessment of the mandate.
Connecting strategy,
complementing with tactics.
Holistic risk management.
Holistic FX Overlay combines strategic orientation with tactical risk management.
The strategic component determines the long-term currency allocation in a portfolio context. The tactical component uses quantitative models for the market-adaptive variation of hedge ratios.
Integrated management logic of Holistic FX Overlay
- Basic reference benchmark as the neutral point of reference
- Strategic FX allocation for each currency
- Tactical risk management using quantitative models
- Reporting for the assessment of benchmark, strategy process and overall strategy
Through this implementation, currency management becomes an independent but integrated dimension of institutional portfolio management.
Integrating implementation,
ensuring control.
Institutional overlay structure.
Holistic FX Overlay is integrated into existing mandate, fund and governance structures. The basis remains robust FX Exposure Management, supplemented by maturity management, best execution, liquidity management and reporting.
Management does not take place separately from the operational framework. It is institutionally embedded through an FX Overlay segment, defined processes and transparent reporting.
Key components
- FX Exposure Management
- Basic reference benchmark
- FX strategy process
- Tactical risk management
- Best execution
- Liquidity management
- Reporting and performance attribution
Reviewing the structure,
validating currency allocation.
Institutional use of Holistic FX Overlay.
7orca Holistic FX Overlay supports institutional investors in strategically assessing currency risks within the overall portfolio, deriving hedge ratios in a portfolio context and managing them tactically.
Strategic. Tactical. Transparent.
- Derivation of a Basic reference benchmark
- Strategic FX allocation for each currency
- Integration of risk budget and governance
- Consideration of portfolio characteristics and asset classes
- Complemented by tactical risk management
- Reporting on benchmark, strategy process and overall strategy
