Foreign exchange (FX) can be a silent profit killer—or a strategic advantage—for fund managers. In today’s climate, where cost pressures are mounting, operational efficiency is paramount, and liquidity access is more critical than ever, mastering FX management is no longer optional.
Currency fluctuations, evolving regulations, and intensifying competition mean FX risk is deeply tied to both profitability and resilience. Yet, too many fund managers take a reactive approach. In an era of relentless market shifts, proactive FX strategies are essential—not just to mitigate risk, but to secure long-term returns and operational stability. But FX management is far from straightforward—fund managers must overcome complex operational hurdles.
Tackling cost transparency
Calculating the costs associated with FX transactions remains the most significant challenge for fund managers, with 37% identifying it as an issue, an increase from 33% in 2023.
Managing multi-currency portfolios often means handling complex FX conversions, where volatile currency movements and variable transaction fees can compound significantly and erode returns. Cost calculation is made more challenging by the absence of standardised industry practices. Many fund managers rely on multiple liquidity partners, each with unique pricing models, spread markups and fee structures. This lack of transparency can make it difficult for fund managers to understand the true cost of their transactions.
Implementing a comprehensive FX risk management strategy, comprising regular reviews and comparisons of the pricing structures offered by different liquidity providers, can help fund managers identify potential cost savings opportunities and negotiate better rates. Some solutions compare live rates from multiple tier-1 liquidity partners, ensuring fund managers gain full transparency on FX costs and helping them to achieve best execution.
Leveraging technology also enables fund managers to automate key FX processes, create detailed reports and analyses of past transactions, and identify patterns and trends in their FX costs.
For example, an independent transaction cost analysis (TCA) can allow fund managers to assess the true cost of their FX trades by revealing hidden costs in the spread and evaluate their execution quality against market benchmarks, helping to drive more informed decision-making.
A reliance on manual processes
Many fund managers continue to rely on outdated, manual processes for instructing FX transactions, with phone calls and emails remaining the primary methods among UK fund managers. In fact, 77% still depend on these traditional approaches to execute transactions, compared to just 50% in North America. Operating FX processes manually is a huge drain on efficiency and can take up a significant portion of funds’ resources and time, with 36% of UK fund managers in 2024 reporting managing manual processes to be a critical issue.
For those looking for alternatives, they may find answers in technology. For example, leveraging APIs enables businesses to automate trade execution by integrating an FX platform into their own systems.
Onboarding new liquidity providers
The onboarding process for new liquidity partners is often still outdated and cumbersome, causing a great deal of trouble for fund managers. Protocols often require vast amounts of paperwork and securing ISDA agreements, a time-consuming process that can take months and often drains time and resources. This process can be even more challenging for small and medium-sized fund managers that do not have the resources to navigate through complex legal agreements and compliance requirements.
To solve this issue, 20% of fund managers are considering automating the onboarding of liquidity providers, to streamline the process. Partnering with FX technology providers can bring this lengthy process down to only a few weeks through express ISDA agreements. This not only enables faster setup of FX counterparties but also facilities FX cost savings by accessing multiple new liquidity streams more quickly.
Embracing FX innovation is a necessity
In a landscape where margins are tightening and volatility is the norm, UK fund managers can no longer afford to treat FX as an afterthought. The key lies in embracing technology-driven solutions that provide greater transparency, automation, and control over FX transactions.
Staying competitive means proactively managing currency exposure rather than reacting to crises. Fund managers that leverage automation, data-driven insights, and strategic liquidity partnerships will be best positioned to navigate market complexities, optimise execution, and safeguard profitability. Those that fail to modernise risk leaving money on the table—and, in an increasingly competitive environment, that’s a risk no fund manager can afford to take.
This article examines the data and results of surveys by Censuswide on MillTech’s behalf conducted in August 2023, June 2024 and September 2024 based on surveys of 252 (2023) and 250 (2024) UK senior finance decision-makers and 258 North American senior finance decision-makers at mid-sized asset management firms in the UK and North America (described as those with assets under management ranging from (£500m to £20b UK 2023), ($500m to $20b North America) and (£40m – £16b AUM/$50m to $20b AUM UK 2024).
MillTech is a London-based foreign exchange (FX/forex) solution provider
