Solutions and Capabilities Currency Management Solutions

Currency Management Solutions

Credit Suisse Asset Management has been managing active and passive currency overlay investment solutions for institutional investors since 2002. Today, we manage close to USD 27 bn1 in tailored currency overlay and share class hedging investment solutions, using specialized currency risk management systems and tools.

Why delegate currency management?

A separate currency overlay can provide significant cost saving synergies for most international investors while also eliminating operational risks. Our dedicated currency team has an average 17 years of hands-on currency management experience and is supported by a large number of experienced specialists across the firm. This combination of global market knowledge, in-depth local market expertise, and state-of-the-art systems and processes allows us to offer value-added solutions for all your currency needs, including active and passive hedging.

Key figures

2002

The year of our first external currency overlay investment solutions 

27 bn

USD in currency exposures under management

17

Average years of experience in dedicated Currency team

7

Total number of currency specialists2

Client focused approach

A delegated currency management solution begins with assessing the client’s needs. What is the optimal execution set-up? Which portfolios and positions should the hedging program cover? What are the properties of those positions (valuations, currency allocation, liquidity)? Which currency exposures should be hedged directly or indirectly (via proxy). What levels and ranges of hedging does the client want? And, finally, which FX strategy should be applied (implementation only, optimised, rule-based, or active?)

Investor objectives

For any currency management solution, the objectives of the investor are critical to the definition of a precise strategy. For example in a passive or semi-passive hedging program, the dual investor objectives most often pursued are the minimising of tracking error as well as total portfolio level transaction cost generated by the currency hedging program. Through simulations and cost analysis it is possible to compare the expected total annualised cost of pursuing different passive hedging strategies for a given portfolio. This enables the identification of the optimal rebalance, tenor, and implementation strategy. The same analysis can also be used to compare the various execution set-up’s available to the client and the most cost-effective alternative for their particular situation can be chosen. The quality of execution can be regularly checked through independent transaction cost analysis.

For active or dynamic hedging strategies, investors will typically be looking for rule-based or discretionary strategies with the potential to add return to the investment portfolio. In a rule-based hedging strategy the hedge ratios will be adjusted systematically (within a given bandwidth around the benchmark hedge ratio) based on one or more factors that have influenced foreign exchange rates in the past. In a discretionary approach the manager will make use of judgement in trying to determine which of a number of different factors might matter more to exchange rates at any given point in time. In both cases a target return, risk budget, and maximum loss limit is defined by the client upfront.