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Auriel launches dynamic currency hedging programme with $1.1bn institutional mandate

Wednesday, December 15, 2010
Opalesque Industry Update - Auriel Capital Management LLP, the London-based investment management firm, has launched a dynamic currency hedging programme for institutional investors with the backing of a US$1.1bn mandate from a US corporate pension plan.

The strategy is designed to reduce the volatility of institutional investors’ foreign currency exposures while profiting from medium and long-term movements across foreign exchange markets. Implemented as a customised overlay, the programme aims to outperform a passively hedged benchmark of overseas currency exposures. It employs Auriel’s quantitative and qualitative risk controls in addition to a systematic portfolio construction process to reduce currency risk relative to static hedging.

Through a systematic, multi-factor approach, Auriel’s programme seeks to add value above a static hedge by exploiting relative valuation opportunities in developed and emerging currencies. It can be altered to suit various time horizons, risk tolerances and existing exposures across currency markets.

The programme utilises a suite of proprietary models encompassing fundamental, risk aversion and technical factors to determine the optimal hedge ratio for a foreign currency pair at a given point in time. With a holding period of approximately one month, the strategy provides a cost-effective alternative to passive hedging with the potential to add value through active views.

Anoosh Lachin, Managing Partner, Auriel Capital Management LLP, says: “With over 25 years of combined currency management experience, Auriel’s foreign exchange team has designed a strategy offering a more robust approach to managing currency risk.

Dynamic currency hedging allows investors to take the decision to reduce currency volatility without having to make an explicit call on the current value of their home currency. The success of dynamic hedge is ultimately driven by the quality of the investment manager's views rather than the strength of the client’s home currency relative to foreign currencies at the point of implementation.”

Asif Noor, Portfolio Manager, Auriel Capital Management LLP, says: “There are two significant potential benefits to dynamic hedging. It can achieve better downside protection without sacrificing the potential for positive returns. Additionally, through dynamic hedging trustees can make the decision to control foreign exchange risk without having to pay undue attention to the timing of their decision.”

(press release)

Auriel Capital Management LLP is a London-based investment management firm specialising in foreign exchange and global macro strategies. Auriel is authorised and regulated by the Financial Services Authority (FSA No. 400027) and is an SEC registered investment advisor (SEC No.: 801-65136). In addition to this new mandate, Auriel manages over US$206m (as at 1st December 2010) in active global macro and currency strategies on behalf of institutional investors worldwide.


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