With its know-how in share class FX Hedging, CACEIS offers an integrated Front-to-Back service backed by its various operational expertise centres. This solution neutralises the exchange rate effect on units denominated in currencies other than the fund's reference currency.
As part of their diversification policy, investors may invest in funds whose currency is different from their own. In this situation, the volatility between their currency and the fund's base currency may impact the profitability of their investment, as well as the subscription and redemption flows.
Share class hedging is the solution to reduce the exchange rate effect by ensuring that the performance of the hedged unit is consistent with that of the reference fund.
This rather complex and systematic currency hedging can be outsourced to an asset servicer like CACEIS. This allows asset managers to focus on dealing the fund's assets.
CACEIS has a turnkey solution for share class FX hedging, with a fully integrated and automated process. The group benefits from direct access to the foreign exchange market via its own dealing room and its A/A-1 S&P rating, which makes it a solid counterparty with a low risk profile. In accordance with CACEIS' foreign exchange execution policy, around ten currencies are traded (USD, EUR, JPY, GBP, CHF, AUD, NZD, CAD, SEK, NOK).
The transactions are carried out through a dedicated and reliable IT platform, with secure and industrialised processing, that is integrated into the CACEIS information system. The rules and conditions of coverage, as defined with the client, are set up on this tool.
"Our service, which is fully integrated front-to-back, is managed by a team of experts within CACEIS' Investment Management Services (IMS) business line. We are now a major player in the share class hedging business; we process around 20,000 orders per month for more than 1,200 shares and over €15 billion outstanding of hedged shares" comments N'Deye Dieng Fall, Head of Forex Share Class Hedging at CACEIS.
This team is acting as the client's point of contact; it also liaises closely with the Fund Administration and Transfer Agent departments, as well as with the CACEIS trading room for order placement. On a daily basis, our experts monitor the exchange of information and the execution of orders. More specifically, they carry out the following operations:
- Hedging, in whole or in part, of the foreign exchange risk between the currency of the hedged share class and the fund’s base currency, by means of foreign exchange transactions (swap or double forward);
- The hedging adjustment ("drift") due to market evolution by setting up a forward exchange with the on-going period as the maturity date; this adjustment calculation is carried out by CACEIS in line with ESMA recommendations on over-hedging, under-hedging and supervision frequency;
- The monthly renewal of contracts reaching maturity (rolls) through a FX swap, maturing at the end of the next period.
A full range of comprehensive activity reports are sent to clients on FX transactions on a daily basis, or at periodic dates on swap and FX contracts in progress, or at each contract renewal date.
For further information on our offer, please contact your usual sales contact.
