Private markets have traditionally been funded by institutional investors such as pension schemes and sovereign funds. These investors typically manage currency exposure independently within their overall portfolios. As a result, private fund structures historically placed less emphasis on managing foreign exchange risk at the share class level.
That dynamic is changing as private wealth becomes a larger source of capital. Wealth managers and private investors often prefer investment exposures to be presented in their domestic currency, allowing them to evaluate the underlying strategy without the added volatility of exchange rate movements.
Private credit and similar asset classes are often positioned as relatively predictable sources of yield. When those returns are exposed to currency movements, the investor experience can diverge from the intended risk profile. Hedging at the share class level helps align the realised outcome with the underlying investment thesis by reducing the influence of foreign exchange fluctuations.
Currency hedging typically relies on foreign exchange forward contracts that must be rolled periodically throughout the life of the fund. These transactions can generate settlement and collateral requirements at each roll date, which means funds must maintain sufficient liquidity to support the process.
Record plc (LON:REC) develops bespoke, high-quality, sophisticated solutions for institutional investors, a unique offering stemming from Record’s knowledge and expertise gained from its core currency hedging markets.
