CURRENCY MANAGEMENT
where ‘new methodologies’ have entered active currency hedging but in an evolutionary rather than revolutionary way.
´7KLV LV ZKHUH 3DUHWR·V FRPSHWLWLYH DGYDQWDJH resides, as the active hedging programmes are run versus a maximum risk budget rather than a standard deviation limit. This provides clients with advanced knowledge of the ultimate absolute or opportunity cost relative to WKH SDVVLYH KHGJLQJ DOWHUQDWLYH µ H[SODLQV $UQDXG *HUDUG
“I’d say the industry has made slow but positive progress in the technology area and while we might still trade a lot by voice, HOHFWURQLF SODWIRUPV KDYH EHQHÀWHG RQ VRPH cost level and new technology has changed RXU OLYHV D ORW &RPSXWLQJ DQG LQIRUPDWLRQ technology has brought down costs and LPSURYHG RSHUDWLRQDO ULVN µ VD\V 5HFRUG
“It’s been a default setting for many
consultants – they tend to go for a 50 per cent hedge as a solution of least resistance, but I see it as a position
of permanent regret as you’re never
really where you want to be,”
Across the industry fees have become more competitive, with passive hedges commanding 3-5 basis points and active hedges between 30-50 bps.
“There is a tendency for clients to focus on how much they’re paying us and how much they’re paying
ARNAUD GERARD
out on a yearly basis for the programme but they shouldn’t see it as a cost at all, its reducing the cost RI WKH XQGHUO\LQJ FXUUHQF\ ULVN RQ WKHLU HTXLWLHV µ DGYLVHV .ORSIHQVWHLQ ´,I WKH\ KDG D SHU FHQW passive hedge and it goes against them, they write a cheque for 10 per cent as a loss. If they have an active hedge, instead of writing a cheque for 10 per cent, they’re writing one for 3 per cent and that 7 per cent GLIIHUHQFH D FDQ EH DQ HQRUPRXV GLIIHUHQFH µ
“We’d say adjust the hedge ratio
framework by using metrics like valuation (PPP), effectively seeking to identify periods of serious
mis-valuations and do so on a bilateral basis across each currency.”
Most managers are incorporating all these elements and arguments in their search for new active hedging business, an argument they IHHO FRQVXOWDQWV DUH ÀQDOO\ EHJLQQLQJ to take on board. And while there may be a shifting in acceptance of active hedging, an increasing exposure to international equities, a broadening of the markets to include the emerging economies, there seems to be little new in trading instruments or strategies. “There’s nothing fundamentally new and I think we’re past the point of the currency industry coming up with whizzy things that look fantastic. There may be complex instruments in the future, but
NIGEL RAYMENT
we’ve invented all the basics and they’re unlikely to FKDQJH µ FRQFOXGHV 1HLO 5HFRUG
Autumn 2011 | Currency Investor 21
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