Currency management for institutional investors
We focus on foreign exchange (FX) trading and currency risk management. We trade FX as an agent and fiduciary to help investors achieve their best execution objectives while managing an important legal obligation. Together or individually, these currency services are designed to lower transaction costs, minimise risk and reduce the operational burden of managing FX.
Foreign exchange trading
Inattention to FX transactions can detract from investment performance. Our agency FX program helps clients manage costs, improve transparency and minimise counterparty risk.
Acting on your behalf, we:
- Reduce costs by netting your transactions and trading as an agent
- Improve transparency by time stamping every transaction and showing the cost of execution
- Align our interests with yours by acting as a fiduciary
- Manage counterparty risk by trading with over 20 banks
You can take advantage of our foreign exchange trading services whether you handle currency needs internally or delegate them to your investment managers.
Fiduciary approach to foreign exchange trading
To help reduce foreign exchange transaction costs, some investors use third parties to manage currency trading. Historically, that's been a principal, such as an investment bank, who fills the order from the principal's own account. More recently, some investors use an agent who acts on the investor's behalf, getting rates from several providers and selecting the best one.
But some investors use an agent who is also a fiduciary. That's important because investors are worried about regulators who have become much less patient with those who don't manage all of their costs–including costs to trade foreign exchange–effectively. Investors can manage this regulatory risk by delegating responsibility to a currency trading agent who is also a fiduciary.
Russell Investments Implementation Services, LLC., member of FINRA, SIPC. www.finra.org
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
We can design a currency program to minimise your currency risk resulting from international investments. We offer three primary currency solutions to assist investors meeting their investment objectives:
- Passive currency hedging
- Dynamic currency hedging
- Absolute return
Passive currency hedging
Why is managing currency exposure important? International investors receive a return consisting of the gain or loss of the foreign security plus the return on the currency used to purchase the security. Currency volatility can be significant and the return from the currency can sometimes swamp the gain or loss on the foreign security. Many investors are uncomfortable with this volatility and look to Russell Investments to help them manage this uncompensated risk.
Currency hedging can reduce or eliminate the foreign exchange volatility from holding international assets. An investor would hedge by selling foreign currencies that are implicitly included in an international portfolio and buying the domestic currency.
How our currency hedging program works
As your currency overlay manager, we:
- Work with you to decide on the features of the program (for example, the frequency of rebalancing the hedge)
- Gather portfolio information from your custodian
- Calculate the amount to hedge for each currency
- Manage trading and settlement Report monthly on the effectiveness of the hedge
Dynamic currency hedging
In our view, Russell Investments' Informed Dynamic Currency Hedging goes a long way to solving the conundrum of what, when and how much to hedge.
A smarter way to manage uncompensated currency risk.
As volatility rises in currency markets, investors are re-thinking their currency hedging policies and are looking to improve the risk-return profile of their international currency exposure. Russell Investments' Informed Dynamic Currency Hedging model (IDCH) which looks for opportunities to raise expected returns and reduce cash flow drawdown from currency hedging within an investor's international portfolio.
Electronic trading for institutional investors
Russell Investments and Integral Development, a leading FX technology company, have launched a unique foreign exchange trading application. The service, designed for the buy-side community, aims to provide advanced netting, best execution and fair allocation of trading outcomes. RFX Network has a sophisticated netting application, a peer-to-peer trading capability, and mid-market matching to reduce transaction costs.
Learn more about our implementation solutions
Our program can result in a cost effective solution for a core component of your trading and risk management initiatives.
Our seasoned team employs the latest advances in technology to find liquidity pools that reduce transaction costs and manage risk.
This is an essential tool for managing large pools of capital as derivative overlays help manage risk elements and improve performance.
We have helped clients manage their risks and investment performance when restructuring their portfolios or asset classes for over 25 years.