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The Evolution of Currency Hedging

Rohanna Wise

Humble Beginnings

In the early 1990s, investors began hedging currency risk in order to protect their international portfolios from unpredictable currency fluctuations. The practice was not widely adopted because of the expense and complexity of implementing hedging strategies. From 2000 to 2008, many managers didn’t hedge, yet earned better returns since the dollar was falling ‐ bringing natural currency-derived returns. However, post‐2008, investors from the US have started losing as the dollar has strengthened, and in an environment of low returns, protecting those returns takes on new importance and hedging can make a big difference.

Insurance Is Not Appreciated Until You Need It

As recently as 2010, experts were still debating about whether implementing systematic currency exposure management programs were worth the cost. For a long time, such programs applied to a global portfolio provided modest risk-reduction benefits and statistically insignificant risk-adjusted returns. Now, more asset managers recognize the benefits of implementing finely calibrated strategies to manage the risk and return exposure of currency with more precision than they had in the past.

The Need For Currency Hedging Is Here To Stay

Demand for internationally diversified portfolios has been and continues to be on the rise. More and more investors want to participate in global investment strategies. Currency hedged ETFs, which were non-existent prior to 2010, now hold more than $50B. Our research indicates that approximately 50% of the global $70T AUM is held in foreign assets. Currency hedging systems and operations have become a necessity. The belief that implementing a currency hedging strategy is expensive is outdated. Market liquidity and sophisticated technology have brought the cost of hedging currency risk down significantly. Technology is enabling managers to hedge in real-time and protect returns by eliminating unwanted currency risk.

Enter Wise Em Risk Em

At WISERISK, we believe that Investment Managers should be equipped with the best available tools that can be used to protect and grow their clients’ assets. For too long, protection from increasingly extreme and unpredictable currency market conditions has only been available to a very small portion of investors. We are here to change that by bringing to market a robust, comprehensive, easy to integrate and use, low cost Currency Exposure Management Platform—WISERISK.