UK fund managers are increasingly hedging their currency risks, with 88% now hedging forecastable FX risk, up from 75% in 2023, according to foreign exchange services provider MillTechFX’s UK Fund Manager CFO FX Report 2024.
The report has shown that geopolitical tensions and market volatility are driving this trend, with over half of fund managers planning to extend hedge lengths and 33% increasing hedge ratios to lock in greater certainty.
Despite rising FX hedging costs—reported by 84% of respondents—fund managers are diversifying their strategies. About 86% are using FX options more frequently, while over half (53%) of those not currently hedging are now considering doing so. This focus on hedging reflects the need for stability in uncertain times, according to the researchers, particularly following major geopolitical events like the US election, which saw the dollar post its largest gain in eight years as other major currencies declined.
Eric Huttman, CEO of MillTechFX, said “Global conflicts have been a continued source of geopolitical instability, causing heightened currency volatility. It’s encouraging to see more fund managers hedge their FX risk, though those with unhedged exposure risk severe financial consequences. Well-thought-through changes to hedging strategies, such as increasing hedge lengths and ratios, can help provide stability and protect returns in turbulent markets.”
FOREIGN EXCHANGE: One last look
The report also found that 87% of fund managers benefited from the stronger pound in 2024, which positively impacted returns. Meanwhile, adapting to the US’s faster T+1 settlement cycle saw firms focus on upgrading technology infrastructure, extending working hours, and engaging external services. These adjustments underline the broader need for operational agility in a fast-evolving market, according to the researchers.
Technology is increasingly central to FX strategies, with 93% of fund managers considering AI implementation, and automation of manual processes as a top priority for 34% of respondents. However, manual processes persist, with FX transactions still largely handled via email (42%) and phone (35%), signalling room for efficiency improvements.
Other challenges include tighter lending criteria and higher interest rates or fees, noted by 68% and 88% of respondents, respectively. These pressures, combined with rising hedging costs, are squeezing returns, emphasising the importance of efficient FX setups and cost-effective strategies.
Huttman added: “In this challenging environment, it is crucial for fund managers to monitor markets closely and reassess their FX strategies. Leveraging technology to drive efficiencies, reviewing legacy relationships, and adopting tools like margin-free hedging can help fund managers maximise returns while protecting against market turbulence.”
