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What is passive currency overlay?
What is passive currency overlay?
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What is passive currency overlay?

03/10/2019

In this video, we take a look at what is passive currency overlay. From portfolio hedging to share class hedging, discover what this solution has to offer. As a leading passive currency overlay provider, BNP Paribas Securities Services can help you achieve your optimal FX hedging model.

In this video, we take a look at what is passive currency overlay. From portfolio hedging to share class hedging, discover what this solution has to offer. As a leading passive currency overlay provider, BNP Paribas Securities Services can help you achieve your optimal FX hedging model.

Institutional investors face constant pressure to deliver returns and reduce costs. They must deal with a range of challenges, including the impact of currency volatility on their investments. To help you maintain full oversight of your FX journey, we have developed a comprehensive program to support you in both portfolio hedging and share class hedging.

Let’s start with an example of portfolio hedging…

Your fund base currency is in Euro and you want to invest in foreign assets such as USD, GBP and CAD in order to broaden the universe of your investments.

Portfolio FX hedging will neutralize the impact of foreign exchange movements between the Euro and your investment currencies, either totally or partially, depending on your desired target hedge ratio.

Now, let’s move to share class hedging.

Investors willing to invest in a fund with a base currency different from their own local currency face a number of risks. These relate to the currency volatility between their own currency and the fund's base currency, that impacts the investments made as well as new flows of subscriptions or redemptions.

The share class hedging process will reduce the effect of FX volatility, ensuring that the performance of the hedged share class is consistent with that of the reference fund. There will remain differences in performance because hedging comes at a cost or a gain due to the difference of the interest rates. But the performance of the hedged share class will be largely immune to the market variation of the FX rate between the share class currency and the fund currency.

Outsourcing your passive FX exposures to an external provider can help you reduce your operational burden and allow you to focus on your core activities. Our solution is scalable, allowing you to move from a fixed to a variable cost structure.

BNP Paribas Securities Services is a leading passive currency overlay provider connected to custody, fund administration, middle office and transfer agent systems. We ensure an integrated and automated FX hedging process, supported by robust end-to-end workflow management. And you remain in full control of your strategies. Our role is to implement and fully respect your guidelines.

Through our transparent, MiFID-compliant and customizable solution, we help you achieve your optimal FX hedging model.

 

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