FX Overlay for Institutional Clients

Hedging the currency risk between the base currency of a fund and that of the investor,

• to attract new investor groups in foreign markets using their domestic currency and offer a currency hedged investment return - used by Investment Managers to seek additional capital into funds
• to offer flexibility to investors with a choice to select the investment hedged in a currency of choice

Through the use of efficient hedging models, the programme looks to mimic the benchmark / base class of the fund and minimise any tracking error as much as possible. These can be performed at investor level but also in the form of look through hedging, whereby a secondary step is taken to ‘look through’ the portfolio to ascertain the required hedge ratios based on the underlying foreign currency exposures. Another alternative is to use benchmark methodology and index/basket currency weights.

Dynamic strategies are designed to actively adjust the hedge ratio to achieve an asymmetric risk profile, that aims to reduce cash flow risk from the hedging strategy and generate an outperformance compared to passive hedging strategies.

HSBC supports a suite of different FX strategies, either developed by HSBC, third party investment managers or those created by our clients themselves. HSBC manages the daily implementation of those strategies in an outsourced business model.