Institutional investors typically have the systems and risk appetite to manage currency volatility internally. In contrast, most private clients are looking for simplicity and certainty. Hedged share classes meet this demand by insulating returns from currency swings between a fund’s base currency and the investor’s domestic currency.
Offering a hedged share class involves more than simply layering on a currency overlay. Fund managers must ensure the hedging strategy matches the fund’s cash flow profile and investment duration. This includes setting up counterparty relationships, executing legal agreements such as ISDAs, and maintaining operational infrastructure to manage rolling hedge positions.
Forward contracts and other hedging tools may require periodic settlement and generate cash flow needs at rollover points. For funds invested in illiquid assets, this can put pressure on liquidity buffers if not carefully managed. Managers must ensure the fund has sufficient cash reserves or access to liquidity to meet hedge-related obligations without disrupting investment activity.
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.
