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Foreign Exchange

Berenberg secures £500 million currency hedging mandate for UK pension fund

Wiltshire County Council Pension Fund has appointed Berenberg Bank to hedge £500 million of non-sterling equity exposure using its systematic dynamic currency hedging framework.

The Hamburg-based bank was selected from a shortlist of three managers, chosen in April, which also included BNY Mellon-owned Pareto Partners and State Street Global Advisors. The appointment of Berenberg has resulted in Record Currency Management losing its passive currency hedging mandate.

In March, Berenberg jointly secured a currency mandate for Norfolk County Council Pension Fund’s £850 million international equity portfolio, alongside Pareto, State Street and Record.

Maria Heiden, investment adviser at Berenberg Asset Management, told EuromoneyFXNews in a recent interview that UK demand for Berenberg’s currency management strategies had been growing, particularly from pension funds that have been allocating a greater proportion of their funds into international equities.

“Awareness of FX risk associated with international investments is growing, and clients are increasingly looking for tailor-made dynamic solutions rather than traditional static approaches,” says Heiden.

Berenberg offers a purely systematic approach to currency risk management, using historical and real-time price data, rather than fundamental economic data or correlations.

“While forecasting macro data can be used to predict the direction of exchange rates, relying on this data for hedging strategies loses value during market shock situations,” says Heiden.

For this reason, Berenberg focuses on the exchange rate itself and analyzes movements through a quantitative system for its dynamic hedging frameworks.

That provides clients with a highly transparent currency hedging service, the bank says.

Berenberg is the second oldest bank in the world, founded in 1590, and is a rare example of a financial institution where the founding family still own a main stake – approximately 25% – of the bank.

The bank began to develop its presence overseas in 2003, opening offices in London, and was able to expand rapidly in 2008, according to Matthew Stemp, the bank’s UK relationship manager for institutional clients.

“With no outside shareholders, Berenberg had the advantage of being able to take a longer-term view,” says Stemp. “When everyone else was downsizing, Berenberg was able to hire some of the best market talent.”

Berenberg manages €4 billion in dynamic currency hedging and alpha strategies, which it will seek to expand as its profile grows beyond its traditional German-centric client base.

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