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Foreign Exchange

FX news: Citi launches active passive service

Operational burdens are getting lighter for investor-clients.

Under the EU’s Undertakings for Collective Investment in Transferable Securities (Ucits) III guidelines, cross-border funds are booming. But so is the need to manage attendant FX exposure. Fund managers, issuing share classes in different currencies, are taking on currency risk that, typically, they lay off into one of the many bank-offered share-class hedging programmes.

When Citi announced the launch of its AutoFX passive hedge service this week, I assumed this was another share-class hedging product. But according to the press release: “The service provides new levels of flexibility, transparency and efficiency to the FX marketplace. By using set standing instructions to execute FX contracts based on the securities portfolio valuation, AutoFX Passive Hedge smoothes out the influence of currency fluctuations in the overall return to international investment portfolios.”

So this is something a little different: it isn’t necessarily aimed at funds at all – client portfolios can be a mixture of equity or fixed income instruments in a variety of currencies. Clients stipulate trigger thresholds to have currency hedges automatically adjusted back to the desired ratio. Citi calls it “an active passive solution”, which sounds daft but does sum it up.

The service is yet another indication of the lengths banks go to to capture business throughout the trade lifecycle.

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