CURRENCY RISK MANAGEMENT FOR FINANCIAL INSTITUTIONS
Pension funds and insurers invest in different markets and currencies. What we see in practice is that investment institutions have a good eye on the investment return of a portfolio but have less affinity with the underlying currency risk.
Although the intention is to work based on "best practices" what we see is that there is a limited knowledge of the currency market, hedging strategies, and systems which result in the high-level hedging of the risk at often higher costs.
Some pension funds or insurance companies use asset managers to manage their investment portfolio, and currency risk is managed via currency overlay programs. What we see is that although bilateral agreements are in place contracts are not always adhered to. For example, pricing benchmarks like the EBC fix might be agreed to price FX deals, but are the trading systems of the asset manager able to apply this benchmark. The fact that best execution is contractually agreed it does not mean that it is applied.
>> WE HELP YOU TO SET UP YOUR OPERATIONS BASED ON BEST PRACTICES AND BEST EXECUTION
2FX Treasury has a wealth of experience in the foreign exchange market. Due to our detailed knowledge of the FX market, hedging strategies, systems, and procedures, we can help you to set up your operations based on best practices and best execution.
>> WE HELP YOU WITH PRICING
Another critical component we can help with is pricing. We understand how the banks and asset managers construct and calculate FX rates and know whether a price is in line with the market. An FX rate with an additional spread of few basis points can sometimes make thousands of euros difference. A robust and transparent agreement with a third party provider can save you thousands of euros. We have conducted price reviews for both banks and pension funds, thus helping to form a judgment whether the prices used were accurate and market-conform.
If there are significant differences, you can decide to negotiate a new price agreement, change from bank or asset manager or even request financial compensation. We can help you make new pricing arrangements or support you in compensation discussions. Over the years, we have built an extensive financial network and have a good insight into banks and asset managers. If required, we can introduce you to different service providers and help with price negotiations.