Hedging risks rethink

Sharp moves in foreign exchange currency pairs during the past 18 months have resulted in institutional investors reappraising their currency risks and hedging techniques. Some investors are using new instruments to better match their liquidity profiles. Others are opting for currency overlay.

Retirement funds and other long-term asset managers are learning the cost of being complacent about short-term currency risks. Often using strategic asset allocations (SAAs) to build their portfolios, with reviews done only at three- to five- year intervals, currency risks related to foreign assets were often subject to medium-term views. Discussions about hedge ratios applied to foreign assets, or how to achieve higher efficiencies with currency hedge programmes, ranked only low on the