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Asset Pools Need Currency Protection – Part I: Corporate Treasury

Rohanna Wise

Is your Corporate Treasury protected from currency fluctuation? Asset pools, such as defined contribution plans and corporate treasuries, that have not traditionally been known for their currency hedging strategies. The increasing volatility in the currency markets is changing this. What’s more, there is no one way that corporate treasurers track their ‘fx footprint.’ That means there is an opportunity to create some standardization in an industry where even decisions on how to apply the accounting rules related to foreign holdings can be unclear at times.

What’s Hedged, What’s Not

Historically, it’s been common for pensions and other investment funds to administer a currency hedging strategy to guard against currency fluctuations. However, as of late, maintaining these strategies has become increasingly complex and critical. Portfolio Managers of global assets and corporate treasurers, in particular, are struggling with currency hedging and risk management because of a lack of automation in their antiquated processes.   

It should come as no surprise that projects are being initiated to evaluate off-the-shelf financial technology solutions to centralize and automate the processes and tasks related to currency risk management. Given the choice to build versus buy, firms are choosing to buy. Firms are recognizing the need to focus on their core competency of producing positive returns on managed assets. The intrinsic and extrinsic costs of building and maintaining proprietary systems outweigh the nebulous expected ROI of an internal build.

An Increase in Proactive Currency Management?

In the face of this increased complexity and globalization, we expect to see a demand for currency hedging on the part of small and midsize institutional investors in their operational due diligence. Since the crash of 2008, investor demands transparency have continued to increase. Investor tolerance for spreadsheets and ad hoc homegrown solutions has been largely eliminated. Any identified inefficiencies are viewed by investors as drags on returns. And for the past decade, there has been awareness amongst managers and their investors regarding FX trading and execution.

This is more than a story about currency becoming an asset class in its own right. Recent news has raised the awareness amongst managers and their investors regarding the accepted and questionable practices in FX trading and execution.  With a plethora of managers to choose from, investors are demanding more in all facets of their manager’s operations. When it comes to FX management, there is an opportunity to be leveraged by the manager who can demonstrate automation and efficiencies. Too many managers are still relying on too much manual intervention and processes that investors realize are inefficient and error-prone.

If More Automation is Preferred in FX Management, WiseRisk Can Help

WiseRisk was created for any manager that wants more precise insight into their currency exposure and risk with the ancillary benefit of diminishing costs associated with outsourcing the trading to the Street. The proliferation of SaaS tools and platforms has empowered managers to take more control in the areas of portfolio optimization and trade execution. WiseRisk offers these same advantages for managing currency risk and exposure.

Please send us a note at us demonstrate how WiseRisk address your current needs in FX management.