Bespoke Passive Hedging & Active Hedging are services where companies retain us to manage their currency risk / exposures, separating their core business decisions and currency risk management, so they can focus on the former. We seek to reduce the currency-specific risks of your operations, which can be just as time consuming as your main business, and take a hands-on approach seeking to limit the downside currency exposure while also increasing the returns from a favorable currency move through our Enhanced and Hedging Plus services. Bespoke Passive Hedging is chiefly a risk mitigating strategy whereas Active Hedging may seek some allocation to currency risk premia.
Our Bespoke Passive Hedging program is a customized solution designed with every aspect and associated currency risk being assessed and addressed to mitigate risk. There are often opportunities to add value by minimizing costs and maximizing operational efficiencies with tactically improving hedging outcomes, which may be suitable to certain clients from time to time.
Conversely, our Active Hedging programs (Enhanced & Hedging Plus), use two different methods that are not dependent on currency movement "calls". These strategies operate by varying the currency hedge ratio, usually within, and constrained, to a predefined range (0% to 100%).
The Enhanced Hedging strategy uses Dynamic Currency Hedging (DCH) to add value by closing loss-making hedges in a timely fashion, so negative cash flows are reduced yet maintaining profitable hedges. DCH seeks to exploit the trending characteristics of the currency markets.
The Hedging Plus strategy targets a greater exposure to profitable hedges through incorporating signals based off well understood price behaviours and factors prevailing in the currency markets: macroeconomic/country specific conditions (value), interest rates (carry), momentum (trend) and volatility (realized vs implied).
Hedging is often overlooked by SMEs due to the lack of resources, knowledge, and the complexity and perceived costs of hedging while for those currently hedging, so too is one (likely many) very important benefit of an Active vs Passive hedging strategy. Passive hedging can lead to very substantial negative cash flows from margin calls and large realized losses if the exchange rate move is extreme, such as what happened during the financial crisis when the US dollar drastically appreciated. Active hedging, by its very nature, reduces the potential of being caught on the wrong side of such a move and the subsequent large, negative cash flows although closing losing hedges will incur a trading cost.
Hedging FX exposures is important, but too many "experts" focus on exposures without taking into account cash flows, which are just as, if not more, important. Under our Active Hedging programs, if you are an exporter, the hedge ratio would be increased (lowered for an importer) when we anticipate base currency strength and lowered (increased for an importer) in anticipation of the base currency depreciating. As complicated and resource intensive as this may be, the best part is that we do ALL the work, saving you a substantial amount of time and effort, which can be reallocated to more profitable and important tasks.