MillTechFX has launched a margin-free foreign exchange (FX) hedging solution for fund managers looking to free up cash to invest more capital.
Assets under management (AUM) continue to grow rapidly in the alternative investment community, but average investment lifecycles for private debt funds last one to five years, while private equity fund terms are closer to ten.
This introduces a long-term exposure to currency risk that fund managers hedge using FX forward contracts. The problem with FX forwards is that many banks request collateral to be posted upfront (initial margin) and on an ongoing basis (variation margin).
As a result, assets under management (AUM) are held back to meet a margin call instead of being invested. This calls for an alternative solution: a margin-free hedging service offered by MillTechFX in partnership with Investec.
Fund managers using the service are able to remove the need to post initial and/or variation margin without jeopardising best execution, thus freeing up cash to invest more capital, increase operational efficiency and drive down costs for their investors.
Max Dobson, Commercial Director of MillTechFX, commented: “We are excited to be partnering with such a dynamic, global bank that is truly committed to providing an excellent service for its clients. Investec’s credit appetite and balance sheet, combined with our independent multi-bank marketplace, will help managers significantly reduce their operational risk and costs while also enabling them to demonstrate best execution and best practice to their investors. This is the first of many strategic partnerships for MillTechFX, and we look forward to announcing more partnerships with innovative firms like Investec in the coming months.”
Sebastian Wright, Risk Solutions at Investec, commented: “At Investec, we have always focused on innovation to ensure our clients have access to industry leading solutions. As such, we are proud to be partnering with MillTechFX on this joint venture. The team at MillTechFX have impressed us from day one with their outsourced FX execution technology, providing fund managers access to a wide pool of interbank liquidity with complete transparency and operational efficiency. By partnering, we believe that we can solve the constant trade off that clients face – that of obtaining the best market price or the best market credit terms – whilst also offering the best market practice post trade in Trade Cost Analysis.”
