Sam Hunt

Tom Hoyle

Justin Xu

Joe McKenna

<h2><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">Table of Contents:</h2>
<ul>
<li><a href="#fxtradelifecycleautomation">What part of the FX trade lifecycle is most overdue for automation?</a></li>
<li><a href="#technologyandfxdecisions">How can technology help treasury teams make faster, more informed FX decisions without deep market expertise?</a></li>
<li><a href="#emergingtechnologytransformingfx">What's one emerging technology that will quietly transform FX in the next decade?</a></li>
<li><a href="#securityinfxtech">How do you balance the push for speed with the need for security in FX tech?</a></li>
<li><a href="#automationreshapingfx">How will automation reshape the way corporates and fund managers manage FX by 2030?</a></li>
</ul>
&nbsp;
&nbsp;
<h2 id="fxtradelifecycleautomation"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">1. What part of the FX trade lifecycle is most overdue for automation?</h2>
Our CEO talks about a time where he watched a fund manager print out this month&rsquo;s data and last month&rsquo;s data, then runs a ruler down the page to compare the data and determine the FX trades that need to be placed. Whilst this is an extreme case, it is reflective of the lack of appropriate tooling available for mid-market organisations to manage their FX.
Typical areas where we see a lack of automation are determining trades to be placed, approvals and limits, executing in competition, trade settlement &amp; reporting, audit of execution quality, integration into up and downstream systems.
To determine the priority area for your organisation, focus on the bottlenecks and risk. What are the areas that consumes the most resource and introduces the greatest risks. Start there, any automation that isn&rsquo;t at the bottleneck, is a nice to have but will not move the needle until the bottleneck is resolved.
&nbsp;
<h2 id="technologyandfxdecisions"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">2. How can technology help treasury teams make faster, more informed FX decisions without deep market expertise?</h2>
When setting up an FX programme, one of the key decisions you need to make is your hedging strategy. What to hedge? How much to hedge? How long to hedge for? Traditionally, for clients that are not FX experts, these questions were the domain of expensive consultants. As a technology first organisation, we look at these questions as optimisation problems and give our clients the tools to make these decisions themselves, without having to pay expensive day rates.&nbsp;
The art of a great product is to take users on the journey with you. We spend a lot of time testing our designs and creating feature tours to make these tools easier to adopt. We&rsquo;ve recently started adding AI explainers as well to help translate the findings.
&nbsp;
<h2 id="emergingtechnologytransformingfx"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">3. What's one emerging technology that will quietly transform FX in the next decade?</h2>
I believe AI and Agentic will loudly transform FX in the next decade, as it will many other industries. Within this the enabling technology that I think will have the greatest impact but will get less column inches is Model Context Protocol (MCP). MCP provides a way for agents to talk to systems, like APIs currently allow systems to talk to systems. This has significant benefits, it will reduce the time to integrate AI enabled systems, and make it easy for non-technical people and agents to talk to systems and data in normal text rather than code. For example, rather than exporting a .csv then wrangling some excel formulars to complete an analysis you'll be able to describe what you want in plain English (or French, Spanish etc). The MCP server will determine which sequence of API calls and transformations are required to complete your request, then will share the results back to you in your preferred channel.
&nbsp;
<h2 id="securityinfxtech"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">4. How do you balance the push for speed with the need for security in FX tech?<span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; color: black; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">&nbsp;</h2>
These are often pitted against&nbsp;each other, but the reality is you cannot achieve speed without a high level of quality and security. If technical teams do not proactively focus on these non-functional elements, they will rear their heads in nasty and unexpected ways that derail the functional work.&nbsp;
The trick is to build these controls into your way of working in an automated fashion. Historically security was a gate point at the end of the project. We embed security throughout the process through early-stage threat analysis, technical security gates in the development process and ongoing security monitoring.
&nbsp;
<h2 id="automationreshapingfx">5. How will automation reshape the way corporates and fund managers manage FX by 2030?</h2>
Currently we see different levels of maturity when it comes to FX and treasury automation. By 2030, the difference between the leaders and the laggers will grow significantly. Those organisations that embrace the change will replace manual processes and a fragmented system landscape with FX intelligence available within their preferred tools. This will dramatically reduce the time spend managing FX and the risks associated with it.

Our Chief Technology Officer discusses how FX automation and AI are reshaping technology’s role in fx risk management.

Blog 

Rapid Fireside Chat with Sam Hunt

MillTech Team

Learn what FX risk is, how to assess exposure, define hedging needs, and use tools to manage risk effectively in 2025

Risk 

Do you know your FX risk and hedging requirements?

MillTech was named the &lsquo;World&rsquo;s Best FX Risk Management Solution&rsquo; by Euromoney on 25th September at the <a href="https://www.euromoney.com/awards/foreign-exchange-awards/" target="_blank" rel="noopener">2025 Foreign Exchange Awards</a> in The Savoy, in London.
This is the second year in a row MillTech has won the &lsquo;World&rsquo;s Best FX Risk Management Solution&rsquo; at the Euromoney Awards, reinforcing our position as a market leader with a best-in-class FX offering.
For over 44 years, the Euromoney Foreign Exchange Survey has stood as the most comprehensive representation of the wholesale foreign exchange market. They celebrate excellence in the global FX market and provide the opportunity to be part of the market&rsquo;s most comprehensive overview of developments in the FX industry. Judged by the world&rsquo;s leading analysts and providers and buy-side corporations, the awards look to recognise the best in excellence and innovation in the market.
We were recognised for our commitment and success in reducing clients&rsquo; execution and hedging costs by providing them with direct access to preferential rates and credit from up to 15 Tier one counterparty banks via a user-friendly client platform.
Key to MillTech&rsquo;s win was the launch of our new risk advisory platform, <a href="https://www.milltech.com/product/co-pilot" target="_blank" rel="noopener">Co-Pilot</a>, in May 2025, to enhance client decision-making. Co-Pilot is a next-generation, AI-enabled risk advisory and calculation service designed to help clients efficiently manage their FX risk, optimise cash deployment and improve decision-making.
Initial Co-Pilot features include a hedging simulator, which enables MillTech clients to model and test various FX hedging strategies in a simulated environment. This means fund managers and corporates can probe their FX hedges in a risk-off environment, helping them to determine the risk profile of different strategies.&nbsp;
Co-Pilot also features a carry-analysis tool, which helps clients to better monitor and understand the implications of interest rate differentials between two currencies in the context of FX hedging.&nbsp;
We also simultaneously launched a new <a href="https://www.milltech.com/product/cash-management" target="_blank" rel="noopener">cash management solution</a>, in collaboration with BlackRock&rsquo;s CacheMatrix, to help investment managers and global corporates optimise their excess cash. Our solution automates cash investments and enhances returns through direct access to an integrated marketplace of tier-1 money market funds.
Eric Huttman, CEO of MillTech, commented: &ldquo;<a href="https://www.bloomberg.com/news/articles/2025-08-29/pound-strength-leaves-uk-companies-adding-hedges-as-pain-mounts" target="_blank" rel="noopener">Global economic shifts</a> and <a href="https://www.reuters.com/markets/currencies/geopolitical-angst-prompts-over-60-companies-hedge-fx-longer-survey-shows-2025-03-28/?utm_source=chatgpt.com" target="_blank" rel="noopener">geopolitical tensions</a> continue to drive FX markets, creating <a href="https://thefullfx.com/corporate-fx-hedge-ratios-soar-as-volatility-bites-survey/" target="_blank" rel="noopener">heightened volatility</a> and complex risks for corporates and fund managers. In this environment, proactive and adaptive strategies are crucial for protecting margins and maintaining stability. Our recognition as Best FX Risk Management Solution by Euromoney reflects our ability to deliver precisely that: robust, responsive solutions that help clients navigate uncertainty, absorb external shocks and stay ahead in unpredictable markets.&rdquo;
If you&rsquo;re interested in finding out more about the &rsquo;World&rsquo;s Best FX Risk Management Solution&rsquo;, get in touch today: <a href="https://milltech.com/contact/" target="_blank" rel="noopener">https://milltech.com/contact/</a>

We have been named ‘World’s Best FX Risk Management Solution’ by Euromoney for the second year in a row.

Awards 

World's Best FX Risk Management Solution 2025

How automation can help CFOs and treasurers streamline FX risk management and stay ahead in 2025&rsquo;s volatile markets.
<h2>The FX landscape in 2025</h2>
2025 has already been a whirlwind for global currencies. The dollar experienced its <a href="https://www.theguardian.com/business/2025/jun/30/us-dollar-first-half-trump-tariffs?" target="_blank" rel="noopener">worst first half since 1973</a>. Sterling recorded its <a href="https://www.reuters.com/world/uk/sterling-firms-three-year-peak-focus-welfare-bill-vote-2025-07-01/#:~:text=July%201%20(Reuters)%20%2D%20Sterling,investors%20to%20look%20for%20alternatives." target="_blank" rel="noopener">strongest quarter in nearly three years</a>, and the euro soared to a <a href="https://www.reuters.com/world/middle-east/dollar-droops-optimism-over-us-trade-deals-boost-fed-easing-bets-2025-06-30/" target="_blank" rel="noopener">four-year high</a>. With tariffs dominating headlines and policies shifting from one day to the next, stability has been hard to find.
Treasurers faced a jolt in April when the VIX index&mdash;a key measure of investor demand for protection against market volatility&mdash;<a href="https://www.reuters.com/markets/global-markets-volatility-graphic-2025-04-10/" target="_blank" rel="noopener">spiked to 60</a>, a crisis-level reading seen only three times since its inception. Meanwhile, corporate attention has been fixed on central bank policies, as diverging interest rate trajectories between the Federal Reserve, European Central Bank, and Bank of England further complicate the landscape.
For CFOs and treasurers, the message is clear: FX risk can no longer be left to chance. FX automation &mdash; the use of technology to execute, monitor, and adjust FX strategies without manual intervention &mdash; is emerging as an essential tool for navigating markets with speed, precision, and confidence.
&nbsp;
<h2>The case for automation in modern FX strategy</h2>
Our <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">2025 Global FX Report</a> shows just how dependent many market participants remain on manual methods. A third of corporates (34%) still pick up the phone to instruct their FX trades, while another 32% rely on email. Fund managers aren&rsquo;t much further ahead: 29% are on the phone, and 31% stick with email.
With so much inefficiency still in play, it&rsquo;s little wonder that automation is increasingly becoming a top priority for fund managers and corporates worldwide.
<h3>Why finance teams are prioritising</h3>
Automation in FX isn&rsquo;t just about speed &mdash; it&rsquo;s about accuracy, transparency and scale. Here are some of the key drivers behind the shift:
<ul>
<li>Price discovery: Manually comparing FX rates isn&rsquo;t just slow, it can also limit the pool of liquidity providers. The fewer options finance teams have, the more likely they are to end up paying a premium.</li>
<li>Risk identification: With the sheer volume of data involved, spotting hidden risks without technology is like looking for a needle in a haystack. Inevitably, that leads to oversights, and oversights in FX can be costly.</li>
<li>Trade execution and settlement: Every extra step done by hand adds friction. Delays creep in, errors become more likely, and costs quietly mount.</li>
<li>Onboarding liquidity providers: Bringing new counterparties onboard isn&rsquo;t just a handshake&mdash;it often means mountains of paperwork and ISDA agreements that can drag on for months.</li>
</ul>
&nbsp;
<h2>Practical applications of FX automation</h2>
<h3>Automated hedging</h3>
Hedging no longer requires continuous manual oversight. With automation, execution and settlement becomes rules-based and aligned with policy, reducing the risk of human error and ensuring consistent outcomes.
Key capabilities include:
<ul>
<li>Automated systems integration: Data flows automatically between treasury and accounting platforms, eliminating duplication, reducing delays, and ensuring real-time consistency across systems.</li>
<li>Automated reporting: Generating and distributing packs for regulators, auditors, and boards with minimal effort.</li>
</ul>
<h3>Cash optimisation</h3>
Excess liquidity often sits idle or is misallocated. Automation ensures cash is continuously deployed in line with treasury policy, maximising returns while maintaining necessary buffers.
With automation, CFOs and treasurers can:
<ul>
<li>Identify surplus cash automatically through configurable rules.</li>
<li>Deploy funds efficiently, directing them to earn the best return while maintaining liquidity buffers.</li>
</ul>
&nbsp;
<h2>Embedding automation into your existing FX workflow</h2>
<a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">Embedding automation</a> isn&rsquo;t about adding another layer of technology &mdash; it&rsquo;s about transforming how FX strategy is designed and executed.
For CFOs and treasurers, automation creates the foundation for risk management that is proactive, transparent, and scalable, rather than reactive and manual. At MillTech, we work with finance leaders to embed automation in a way that aligns directly with governance, risk appetite, and strategic objectives.
<ul>
<li>Automated execution: Trades are executed automatically via API or FIX connections.</li>
<li>Straight-through settlement: Settlement instructions are automated via SWIFT or CLS, sent directly to your custodian or bank account for faster, safer completion.</li>
<li>Automated reporting: Reporting packs are generated and distributed automatically to Administrators, Custodians, PMS/TMS systems, and regulators, ensuring consistency and compliance without extra manual work.</li>
<li>Cash optimisation: Excess cash is identified automatically using configurable client rules and deployed on a best-return basis.</li>
<li>Strengthening governance: Reports and yield data are published daily, ensuring compliance with best execution standards.</li>
</ul>
Together, these capabilities show how MillTech embeds automation at the core of FX strategy &mdash; delivering the accuracy, control, and scalability CFOs and treasurers need to navigate 2025&rsquo;s volatile markets with confidence.
If you&rsquo;d like to explore how automation could strengthen your FX strategy, you can get in touch with our team <a href="https://www.milltech.com/contact" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our&nbsp;<a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a>&nbsp;for more information on the data referred to in the above.

Automation is transforming FX strategies in 2025, supporting corporates and asset managers with greater efficiency and risk oversight.

Automation 

Embedding automation in FX strategy 2025

It&rsquo;s a challenging time for North American businesses. From <a href="https://www.bloomberg.com/news/articles/2025-04-08/fx-volatility-bets-show-swings-will-get-bigger-as-tariffs-shatter-order" target="_blank" rel="noopener">currency fluctuations</a> to <a href="https://tax.thomsonreuters.com/blog/2025s-supply-chain-challenge-confronting-complexity-and-disruption-in-global-trade-tri/" target="_blank" rel="noopener">trade disruptions</a>, the landscape is evolving rapidly&mdash;and often unpredictably. For years, FX risk was seen as a background issue, quietly managed by treasury teams while the rest of the business focused on more pressing priorities.
But that's changing.
Corporates across North America are quickly realising they can no longer afford to be passive as unhedged FX exposure erodes profits. In this blog, we&rsquo;ll explore the key differences in how Canada and US firms are managing the FX risk that threatens their bottom lines, based on our <a href="https://milltech.com/resources/currency-insight-and-education/the-milltech-north-america-corporate-cfo-fx-report-2025" target="_blank" rel="noopener">2025 North America Corporate FX Report</a>.
&nbsp;
<h2>Quick insights:</h2>
<ul>
<li>Canada demonstrates greater commitment to FX hedging: 97% of Canadian firms hedge FX exposure compared to 88% in the US, often using higher hedge ratios and longer tenors.</li>
<li>Tariff pressures prompt operational shifts: 96% of Canadian firms have adjusted operations in response to tariffs vs. 83% in the US&mdash;despite being more heavily impacted.</li>
<li>Regional FX challenges vary: US firms struggle with fragmented service provision (38%), while Canadian firms focus on demonstrating best execution (36%).</li>
<li>Differing reason for outsourcing: 40% of Canadian firms are outsourcing FX functions to access specialised expertise, while 30% of US firms are outsourcing to enhance scalability and operational flexibility.</li>
<li>AI adoption gains momentum: 46% of US firms are exploring AI for process automation, while 44% of Canadian firms are considering its use specifically for FX operations.</li>
</ul>
&nbsp;
<h2>In this blog:</h2>
<ul>
<li><a href="#fxriskmanagement">How are Canadian firms leading the way with FX risk management?</a></li>
<li><a href="#tariffs">How have tariffs impacted business in Canada and the US?</a></li>
<li><a href="#fxstrategydivide">What's driving the FX strategy divide between the US and Canada?</a></li>
<li><a href="#automationandai">Are automation and AI the future of corporate FX strategy?</a></li>
</ul>
&nbsp;
<h2 id="fxriskmanagement">How are Canadian firms leading the way with FX risk management?</h2>
FX risk management is rapidly moving up the corporate agenda across both Canada and the US. Yet it's Canadian businesses that are taking the lead, embracing a more strategic and forward-thinking approach to navigating currency volatility.
But how exactly do their strategies differ from those of their US counterparts?
<h3>Higher hedging activity</h3>
97% of firms in Canada are hedging their FX exposure, compared to 88% in the US, highlighting a stronger focus on protecting their bottom lines against currency volatility.
<h3>More aggressive hedging</h3>
On average, Canadian firms hedge 57% of their currency exposure, significantly higher than the 47% hedged by US businesses.
<h3>Longer hedging tenors</h3>
Canadian corporates are not only extending hedging tenors more frequently (71% vs. 61%) but are also hedging for longer periods on average&mdash;13 months compared to 4.81 months in the US. This indicates a strategic focus on long-term stability versus short-term speculation.
<h3>Increased hedge ratios</h3>
Canadian firms are boosting their hedge ratios more frequently (36% vs. 31%) whilst US firms are more likely to reduce their hedge ratios (37% vs. 25%), a decision that may leave them more exposed to market fluctuations.
Whether it&rsquo;s through raising hedge ratios, extending tenors, or covering a greater share of their FX exposure, Canadian corporates are taking decisive steps to shield themselves from currency volatility and build stronger financial resilience. For US corporates, this presents a timely opportunity to reassess existing hedging strategies and adopt a more proactive, forward-looking approach, to stay competitive in an increasingly unpredictable FX landscape.
&nbsp;
<h2 id="tariffs">How have tariffs impacted business in Canada and the US?</h2>
Tariffs have emerged as a disruptive economic force in 2025, <a href="https://www.bloomberg.com/professional/insights/markets/navigating-market-volatility-amid-tariff-threats/#:~:text=In%20the%20wake%20of%20tariff,the%20beginning%20of%20the%20pandemic." target="_blank" rel="noopener">dominating headlines and fuelling volatility</a> across global markets. President Trump&rsquo;s assertive <a href="https://www.pbs.org/newshour/economy/a-timeline-of-trumps-tariff-actions-so-far" target="_blank" rel="noopener">trade actions</a> began with targeted measures on Chinese goods, quickly expanding to include imports from Canada and Mexico. The market&rsquo;s response was swift and severe&mdash;on March 10, the S&amp;P 500 dropped <a href="https://www.reuters.com/markets/us/investors-flee-equities-trump-driven-uncertainty-sparks-economic-worry-2025-03-10/" target="_blank" rel="noopener">2.7%</a>, wiping out nearly $4 trillion in value in a single day.
As one of the earliest targets of these new tariffs, it&rsquo;s no surprise that businesses in Canada are feeling the impact more acutely than their US counterparts. Here&rsquo;s a closer look at how tariffs are affecting Canadian firms compared to those south of the border:
<h3>Profitability &amp; competitiveness</h3>
71% of businesses in Canada say tariffs have significantly hindered their profitability or global competitiveness, compared to 69% in the US
<h3>Hedging strategies</h3>
Canadian firms plan to increase hedge ratios and durations in response to tariffs, compared to US firms.
<h3>Currency risk concerns</h3>
In Canada, 43% of firms cite both policy-driven currency fluctuations and unpredictable market movements as their top concerns.
US firms, on the other hand, adopt a more cautious approach, with 38% prioritising counterparty risk in hedging as well as delaying major decisions due to uncertainty.
<h3>Optimism for the future</h3>
Despite the challenges, 89% of businesses in Canada remain optimistic about how tariffs will impact their operations and strategies over the next 12 months, compared to 81% of US firms.
<h3>Strategic operational adjustments</h3>
96% of firms in Canada have adjusted sourcing or manufacturing strategies due to tariffs, significantly higher than the 83% reported by US firms.
&nbsp;
<h2 id="fxstrategydivide">What's driving the FX strategy divide between the US and Canada?</h2>
<h3>How do day-to-day FX operational challenges differ for firms in the US and Canada?</h3>
Navigating foreign exchange operations continues to pose critical challenges for businesses across North America. While both US and Canadian firms face a range of pressures, the nature of these challenges differs by region.
In the US, the fragmentation of service provision stands out as the most pressing issue for 38% of businesses, indicating that many firms are grappling with the challenge of coordinating across multiple liquidity providers or platforms to meet their FX requirements. While platforms that integrate <a href="https://milltech.com/product/fx-management" target="_blank" rel="noopener">counterparty diversity within a single solution</a> can streamline operations and mitigate this issue, many businesses may be unaware that such consolidated solutions exist.
In Canada, the emphasis shifts toward demonstrating best execution, a concern for 36% of respondents. This reflects growing pressure from both internal stakeholders and regulators to ensure transparency and robust pricing justification in FX transactions. For firms relying on a single liquidity provider, demonstrating best execution becomes particularly challenging. However, this challenge can be addressed by comparing FX rates across multiple providers and implementing regular <a href="https://milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">Transaction Cost Analysis</a> (TCA) reporting to evidence that best execution standards are being met.
&nbsp;
<img src="https://directus.corp.milltechfx.com/assets/6c670665-56af-4cd6-940a-df60f959f1d2" alt="Biggest challenges in FX operations for US and Canadian corporates" width="614" height="350" />
&nbsp;
<h3>Why are corporates in the US and Canada outsourcing FX processes?</h3>
Outsourcing FX processes is on the rise, with 100% of surveyed firms now outsourcing at least some part of their FX operations.
From onboarding multiple counterparties to managing the entire end-to-end FX workflow, businesses are increasingly recognising the strategic advantages of outsourcing:
<ul>
<li>30% of US corporates are outsourcing their FX processes to gain greater scalability and flexibility in their operations.</li>
<li>40% of corporates in Canada are outsourcing FX to gain access to specialised expertise.</li>
</ul>
So why are businesses increasingly turning to FX outsourcing now?
It seems there is growing recognition that outsourcing FX operations offers significant advantages, and when done with the right partner, it no longer means a loss of control. By delegating complex tasks to specialised providers, firms can streamline operations, focus on their core business, and drive growth.
&nbsp;
<img src="https://directus.corp.milltechfx.com/assets/c6336545-1ab8-4eda-b777-77d30aceb5e2" alt="Primary reason for outsourcing FX operations &ndash; US and Canada Corporates" width="614" height="350" />
<h3>&nbsp;</h3>
<h2 id="automationandai">Are automation and AI the future of corporate FX strategy?</h2>
<h3>Where are US and Canadian corporates focusing their automation efforts?</h3>
The automation journeys of US and Canadian corporates show similar enthusiasm but different focus areas:
<ul>
<li>36% of US firms are considering automating price discovery.</li>
<li>38% of firms in Canada are considering automating FX reporting.</li>
</ul>
For US corporates, it&rsquo;s no surprise that price discovery is a top priority, with % still struggling to obtain comparative FX quotes. US firms are increasingly adopting&nbsp;web apps to manage transactions, with&nbsp;42%&nbsp;already leading the way. Multi-bank platforms are leading the charge, letting businesses compare quotes from multiple liquidity providers while automating the process. For those still stuck on manual uploads or phone calls, it may be time to upgrade&mdash;or risk falling behind.
For Canadian corporates, ongoing FX volatility and rising costs are making it increasingly essential to track every FX-related transaction&mdash;from trades to payments and receipts&mdash;with precision. Accurate and timely reporting isn&rsquo;t just about compliance; it&rsquo;s also about making smarter decisions and being able to demonstrate best execution. Yet, for many firms, this remains a tough nut to crack.
&nbsp;
<img src="https://directus.corp.milltechfx.com/assets/267666aa-3a8f-4e4e-9744-156966c224f5" alt="Processes US and Canadian corporates are considering automating" width="614" height="350" />
&nbsp;
<h3>What role will AI play in the future of FX strategy?</h3>
AI is no longer just a buzzword for North American corporates, it&rsquo;s becoming a key part of their FX strategy. All firms surveyed are actively exploring how AI can improve their operations, with priorities varying by region:
<ul>
<li>46% of US corporates are considering using AI for process automation</li>
<li>44% of Canadian corporates are considering using AI for FX operations</li>
</ul>
As FX environments become more complex, firms are increasingly looking for faster, smarter, and more scalable ways to manage FX workflows&mdash;and AI is quickly emerging as a powerful enabler of that transformation.
&nbsp;
<blockquote>
Simon Lack, Head of Risk Advisory at MillTech, shares his insights into the drive towards AI for smarter FX risk management:
"We&rsquo;re seeing strong demand for tools that help with <a href="https://milltech.com/product/co-pilot" target="_blank" rel="noopener">hedge scenario modelling and cost attribution</a>, especially as CFOs look for more transparency and control in their FX strategies. These tools make it easier to test different market scenarios, understand the potential impact of hedging choices, and track trading costs more accurately across portfolios. That kind of insight helps finance leaders make smarter decisions and drive better outcomes for their business."
</blockquote>
&nbsp;
Please refer to our&nbsp;<a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a>&nbsp;for more information on the data referred to in the above.
&nbsp;

Why Canadian firms hedge more, what’s driving the FX strategy divide, and how AI is shaping FX in 2025.

Uscanada 

How do FX risk strategies differ between Canada and the US?

In an increasingly volatile global economy, managing currency risk has become a top priority for businesses worldwide. As exchange rates fluctuate and financial pressures mount, firms are turning to FX hedging strategies to safeguard their bottom lines.
This blog explores the key trends shaping corporate FX hedging in 2025, including the growing adoption of hedging practices and the impact of local currency movements on corporate decision-making.
&nbsp;
<h2>Hedging is crucial for tackling currency risk</h2>
<h3>Why is hedging becoming more important for businesses?</h3>
As financial uncertainty grows, an increasing number of businesses worldwide are taking proactive steps to protect themselves. In fact, <a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">81% of companies across Europe, North America, and the UK</a> are now actively hedging their currency exposure.
Leading the charge is Europe, where a remarkable 86% of corporates are now hedging their FX risk&mdash;<a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-european-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">a dramatic rise from just 67% in 2023.</a> This surge is likely driven by a combination of tangible market forces: rate differentials and sustained dollar strength have created persistent volatility, making it increasingly important for corporates to manage their FX exposure.
<h3>What are the consequences of not hedging currency exposure?</h3>
As market conditions continue to shift, 52% of businesses globally that don&rsquo;t currently hedge their currency exposure are now reconsidering their approach. UK corporates are at the forefront this rethink, with 68% exploring new hedging strategies. What&rsquo;s prompting the change? Most likely the financial consequences of inaction: three in four businesses worldwide have recently reported losses due to unhedged FX risk&mdash;underscoring the urgent need for more proactive and robust currency risk management.
&nbsp;
<h2>A cohesive approach to hedging strategies</h2>
<h3>How consistent are hedging strategies globally?</h3>
Corporate hedging strategies are demonstrating notable consistency across the globe. The average global hedge ratio is 48%, reflecting a broad alignment in hedging practices. Here's a closer look at how different regions compare:
<ul>
<li>North America and Europe: Both regions report hedge ratios of 49%.</li>
<li>UK Corporates: Slightly lower at 45%.</li>
</ul>
When it comes to hedge duration, the variation is minimal, which further points to a uniform approach in managing currency risks:
<ul>
<li>Global average hedge duration: 5.3 months.</li>
<li>UK Corporates: Leads with an average hedge duration of 5.5 months.</li>
</ul>
<h3>What do longer hedge tenors and consistent hedging strategies indicate?</h3>
Longer hedge tenors typically indicate that firms are aiming to secure protection over an extended period, likely reflecting their efforts to gain stability amid a turbulent year for the pound. The limited variation observed in hedging strategies suggests that corporates globally are responding in a broadly uniform manner, adopting consistent risk management approaches as they navigate shared global uncertainties.
&nbsp;
<h2>How are domestic currency movements impacting businesses?</h2>
Domestic currency movements are having a pronounced impact on corporates bottom lines, with 88% of firms globally reporting effects. North American firms have borne the brunt, with 92% citing challenges tied to a stronger U.S. dollar.
<h3>How have trade tariffs affected currency movements?</h3>
<a href="https://www.bbc.co.uk/news/articles/c8rgkkl7v8lo" target="_blank" rel="noopener">Tariffs imposed by the the Trump administration</a>, alongside <a href="https://www.theguardian.com/business/2025/apr/04/china-announce-levy-on-us-imports-in-retaliation-to-donald-trump-trade-war-tariffs" target="_blank" rel="noopener">retaliatory levies</a> from global trade partners, have added pressure to markets. These developments have disrupted markets and raised the cost of cross-border trade for both large and small economies. Interestingly, in the immediate aftermath of U.S. tariff announcements, <a href="https://www.reuters.com/markets/currencies/is-dollar-weakness-panic-signal-or-healthy-rebalancing-klement-2025-04-14/" target="_blank" rel="noopener">the dollar has shown unexpected weakness</a>&mdash;suggesting that the financial repercussions may initially be felt domestically before reverberating abroad.
<h3>How have the euro and pound movements affected firms?</h3>
Meanwhile, in Europe, 88% of corporates reported being affected by euro volatility. Similarly, in the UK, of firms felt the impact of a strengthening pound. However, there&rsquo;s a notable difference in the consequences:
<ul>
<li>42% of UK firms experienced negative consequences from pound appreciation.</li>
<li>In comparison, only 28% of European firms were negatively impacted by euro movements.</li>
</ul>
&nbsp;
<h2>Tighter lending criteria and heightened FX costs</h2>
<h3>How is access to credit affecting corporates?</h3>
Access to credit has emerged as one of the top concerns for corporates worldwide:
<ul>
<li>In North America, 31% of corporates identified credit access as their primary challenge.</li>
<li>In the UK, 74% reported greater difficulty securing credit, while 79% noted an increase in fees from credit providers.</li>
</ul>
<blockquote>
&ldquo;Tighter lending criteria is a common feature of turbulent economic times. If the average corporate earnings take a downturn, then lenders perceive a higher risk of defaulting on loans. This causes them to allow only the most creditworthy companies to borrow, particularly given higher interest rates. This tends to cause liquidity headaches and restricted investment opportunities.&rdquo; Tom Hoyle, Head of Corporate Solutions at MillTech
</blockquote>
<h3>How have hedging costs changed for businesses?</h3>
Another key trend impacting businesses globally is the rise in corporate FX hedging costs, with four out of five corporates reporting higher costs over the past year:
<ul>
<li>Europe experienced the most significant increase in hedging costs, with 98% of respondents noting higher costs.</li>
<li>UK businesses were less affected but still saw a rise, with 70% reporting increased hedging costs.</li>
<li>North American businesses experienced a similar trend, with 73% reporting higher hedging costs.</li>
</ul>
Higher hedging costs demand a more proactive and considered approach from treasury teams, given that hedging decisions now carry more weight. CFOs must carefully assess their exposures, determine their hedging capacity, and be sure to choose the right financial instruments. Most importantly, they must strike a delicate balance between the rising costs of hedging and the potential risks of leaving exposures unprotected.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.
&nbsp;

Explore the key trends influencing corporate FX hedging, including the growing influence of local currency movements on business decisions.

Blog 2025

Key global trends shaping corporate FX hedging in 2025

Traditional FX risk management processes are often manual, time-consuming and reliant on outdated tools&mdash;making it harder for corporates to respond quickly and efficiently in today&rsquo;s volatile markets. It&rsquo;s little wonder, then, that all respondents in our recent <a href="https://milltech.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">North American</a> and <a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">UK corporate</a> FX surveys said they are exploring the use of AI in some capacity to improve both operations and decision-making.
In this blog, we take a closer look at how corporates across both regions are starting to adopt AI to reduce their reliance on resource-heavy manual tasks, and move towards more intelligent, tech-driven FX solutions.
&nbsp;
<h2>AI as a strategic tool for FX risk management</h2>
AI is rapidly becoming a strategic priority for corporates on both sides of the Atlantic&mdash;especially as firms search for smarter ways to navigate currency volatility. Faced with ongoing <a href="https://www.economicsobservatory.com/how-are-geopolitical-risks-affecting-the-world-economy" target="_blank" rel="noopener">geopolitical tensions</a>, <a href="https://www.ft.com/content/f76884e9-bc66-4a5d-8445-4f842af5ef68" target="_blank" rel="noopener">diverging monetary policies</a> and a backdrop of <a href="https://www.weforum.org/press/2024/01/wef24-chief-economist-outlook-january-2024/#:~:text=Chief%20Economists%20Outlook%3A%20More%20Economic%20Uncertainty%20on%20the%20Horizon,-Published&amp;text=More%20than%20half%20(56%25),the%20latest%20Chief%20Economists%20Outlook." target="_blank" rel="noopener">macroeconomic challenges</a>, FX risk management is naturally emerging as a key area of interest for innovative technologies.
Corporates are beginning to take action:
<ul>
<li>46% of firms in North America are exploring how AI could help them anticipate and manage FX risk.</li>
<li>43% of UK corporates report a similar level of interest in using AI for FX management.</li>
</ul>
While these numbers reflect consideration rather than full-scale adoption, they signal a clear shift: AI is moving from theory to strategy in the world of corporate treasury.
<blockquote>
Commenting on the trend, Sam Hunt, CTO at MillTech, affirms:
&ldquo;The genie is well and truly out of the bottle with generative AI and any organisation not thinking about how this technology can enhance their offering risks being left behind. It&rsquo;s clear from the findings that CFOs realise that in today&rsquo;s fast-paced digital landscape, embracing AI-driven innovation is no longer optional but essential for staying competitive.&rdquo;
</blockquote>
<h3>Early-stage exploration beyond risk management</h3>
Building on this momentum, process automation and FX operations are also emerging as key areas of AI exploration among corporates in both North America and the UK:
<ul>
<li>39% of North American corporates and 41% of UK corporates are investigating how AI can streamline internal processes and drive greater operational efficiency.</li>
<li>36% in North America and 42% in the UK are focusing on applying AI within FX operations to reduce their reliance on manual procedures.</li>
<li>35% of corporates in North America and 26% in the UK are exploring AI to enhance trade execution, highlighting its growing potential to improve the speed, accuracy and consistency of FX transactions.</li>
</ul>
Together, these trends point to a broader shift: corporates are not only recognising the strategic value of AI, but actively seeking ways to <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">embed it across their FX management strategy</a>.
&nbsp;
<h2>AI use cases in FX</h2>
According to Justin Xu, Head of Quant and AI Strategy at MillTech, AI is unlocking new levels of precision and control in currency management.
<h3>Predictive analytics for FX risk management</h3>
Machine learning algorithms analyse diverse source of information, including historical price movements, macroeconomic indicators, and central bank policies, to predict the direction and magnitude of currency market risks. These insights enable CFOs and treasurers to make more informed hedging decisions, minimizing exposure to currency risk.
<h3>Natural language processing (NLP) for sentiment analysis</h3>
NLP-powered AI models process news articles, central bank statements, and social media sentiment to assess market conditions. By extracting insights from both structured and unstructured data sources, corporates can more effectively manage event-related currency risks, thereby gaining a competitive edge in FX risk management decisions.
<h3>AI-powered process automation</h3>
Many FX-related tasks, such as trade reconciliation, compliance reporting, and KYC/AML processes, are time-consuming and prone to human error. AI-driven automation tools can help to streamline these workflows, reducing manual effort and improving accuracy.
&nbsp;
<h2>Looking ahead: What's shaping the future of FX?</h2>
When it comes to the future of FX operations, corporates on both sides of the Atlantic are placing their bets on emerging technologies&mdash;but not always in the same order.
In North America, corporates are most optimistic about the impact of automation and data-driven tools, with notable interest in several other technologies:
<ul>
<li>Automation and Big Data analytics were each chosen by 26% as the most impactful technologies over the next five years.</li>
<li>18% expect quantum computing to play a significant role.</li>
<li>16% point to AI as a transformative force.</li>
</ul>
In the UK, corporates are leaning more heavily into blockchain and AI-led transformation:
<ul>
<li>23% cite blockchain as the most influential technology on the horizon.</li>
<li>21% highlight automation tools as a priority.</li>
<li>21% also believe AI will shape the future of FX operations.</li>
</ul>
While AI is a consistent theme across regions, the variation in top priorities likely reflects differences in market maturity, regulatory environments and innovation appetite. What&rsquo;s clear, however, is that FX functions are entering a transformative era&mdash;where advanced technologies are shifting from experimental to everyday use in FX strategies.
&nbsp;
<h2>Reimagining FX with AI: Inside MillTech&rsquo;s next-gen approach</h2>
At MillTech, we&rsquo;re applying AI in practical, targeted ways to streamline processes and improve efficiency across the business and for our clients.
<h3>Smarter compliance through document intelligence</h3>
To ease the burden of regulatory onboarding, we&rsquo;ve developed a generative AI solution that accelerates KYC and AML processes with our 15 counterparty banks. By extracting key information from complex legal documents, this tool significantly reduces manual effort and improves accuracy, transforming what was once a time-consuming task into a streamlined workflow.
<h3>Empowering developers with AI-Driven code search</h3>
Internally, we&rsquo;re using generative AI to supercharge our development process. Rather than relying on outdated or scattered documentation, we use generative AI to let developers query the codebase directly, allowing them to retrieve accurate, context-aware answers, saving valuable time.
<h3>Introducing Co-Pilot</h3>
We&rsquo;re now extending these AI capabilities to our clients through <a href="https://milltech.com/product/co-pilot">Co-Pilot</a>, our newly launched risk advisory solution, embedding intelligence directly into FX risk management decision-making.
By drawing on macroeconomic indicators and historical pricing data, Co-Pilot delivers intelligence-led insights that empower clients to:
<ul>
<li>Translate raw FX exposures into meaningful, actionable insights.</li>
<li>Simulate hedging strategies and explore alternative FX and liquidity scenarios.</li>
<li>Monitor cost and carry dynamics across currencies, instruments, and time horizons.</li>
<li>Assess the impact on cashflows, internal rate of return (IRR), and other key performance metrics.</li>
</ul>
<a href="https://milltech.com/contact">Get in touch</a> to discover how Co-Pilot&rsquo;s can help your business make smarter, faster decisions.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How are corporates leveraging AI to improve FX decision-making and simplify processes?

Ai 2

The rise of AI in corporate FX risk management

<h2>Key takeaways:</h2>
<ul>
<li>MillTech has collaborated with BlackRock&rsquo;s CacheMatrix to launch its Cash Management offering to include simplified and automated Money Market Fund access for Investment Managers and Global Corporates</li>
<li>MillTech has also launched Co-Pilot: a Risk Advisory and Calculation Services platform designed to enhance client decision-making in optimising FX and Cash Management</li>
<li>The company brand has evolved to &lsquo;MillTech&rsquo; from &lsquo;MillTechFX&rsquo;, now reflecting it&rsquo;s more holistic treasury offering for clients.</li>
</ul>
&nbsp;
London, June 2025 - FX hedging specialist, MillTech, has launched a new <a href="https://www.milltech.com/product/cash-management" target="_blank" rel="noopener">cash management solution</a>, in collaboration with BlackRock&rsquo;s CacheMatrix, to help investment managers and global corporates optimise their excess cash. Its solution automates cash investments and enhances returns through direct access to an integrated marketplace of Tier-1 money market funds.
MillTech has experienced significant success in providing the investment community and global corporates with automated currency management and access to better FX rates.
The firm, which has an average annual group trading volume of $500bn+, over 250 client entities and $28bn in group hedging programmes, has now set its sights on solving another key problem within treasury management: the operational complexity of optimising excess cash.
&nbsp;
<h2>Cash management solution in collaboration with BlackRock&rsquo;s CacheMatrix</h2>
MillTech has launched a new Cash Management platform in collaboration with BlackRock&rsquo;s CacheMatrix, offering competitive returns from a range of AAA-rated <a href="https://www.milltech.com/resources/glossary/money-market-funds" target="_blank" rel="noopener">money market funds</a> while removing operational complexity.
<h3>Addressing key challenges for treasury teams:</h3>
<ul>
<li>Operational inefficiencies - Managing multiple money market fund relationships can be administratively heavy, often involving repetitive onboarding processes and fragmented reporting.</li>
<li>Idle cash drag &ndash; Cash left uninvested in bank accounts often generates little or no return, reducing potential yield.</li>
<li>Rate inconsistency - Without centralised access to multiple MMF providers, comparing yields and securing the most competitive rates can be challenging.</li>
</ul>
<h3>Platform features:</h3>
<ul>
<li>AAA-rated funds &ndash; Direct access to AAA-rated funds for maximum security and minimal credit risk.</li>
<li>Streamlined multi-bank onboarding - Quick access to tier-one liquidity providers through a simplified, multi-bank setup.</li>
<li>End-to-end automation - Fully automated investment workflows to save time and reduce risk.</li>
<li>Auto cash settlement via SWIFT - Seamless cash transfers with minimal manual input.</li>
<li>Enhances control and compliance - Rules-based framework to support informed, compliant cash allocation decisions.</li>
</ul>
<h2>&nbsp;</h2>
<h2>MillTech Co-Pilot Risk Advisory Platform</h2>
MillTech&rsquo;s <a href="https://www.milltech.com/product/co-pilot" target="_blank" rel="noopener">Co-Pilot</a> platform integrates advanced analytics, automation, and robust governance tools to help corporates and funds optimise liquidity management and foreign exchange (FX) strategies.
<h3>Key challenges addressed by Co-Pilot: </h3>
<ul>
<li>Complex FX risk assessment &ndash; Limitations in modelling exposures and evaluating hedging strategies in dynamic market conditions.</li>
<li>Limited governance oversight &ndash; Lack of robust tools to monitor policy compliance, market alerts, and performance analysis.</li>
<li>Cost-of-carry visibility gaps &ndash; Challenges in tracking and analysing cost-of-carry across different currencies, instruments, and time horizons.</li>
<li>Inefficient cash utilisation &ndash; Difficulty identifying and reallocating excess balances promptly, resulting in missed yield opportunities.</li>
<li>Manual and inconsistent hedging workflows &ndash; Fragmented processes and disconnected data sources hinder consistent, rules-based strategies.</li>
</ul>
<h3>Key features:</h3>
<ul>
<li>Hedging simulator &ndash; Models multiple FX hedging strategies and tests alternative FX or liquidity scenarios in a controlled environment.</li>
<li>Carry analysis tool &ndash; Tracks and evaluates cost/carry across currencies, instruments, and durations, with impact analysis on cash flows and IRR.</li>
<li>Governance &amp; Control - Institutional-grade oversight with custom hedge policies, counterparty monitoring, value-at-risk (VaR) metrics, macro-market alerts, and independent transaction cost analysis (TCA).</li>
<li>Auto‑hedging - Fully automates hedging workflows across assets, share classes, and balance sheets using rule-based calculations, intelligent tenor selection, and performance benchmarking.</li>
<li>Cash optimisation &ndash; Automatically identifies excess cash using customisable rules, deploys it based on best available returns, and tracks utilisation to ensure optimal yield.</li>
</ul>
&nbsp;
Eric Huttman, CEO of MillTech, commented: &ldquo;The challenge of optimising cash returns to maximise yields whilst reducing operational burden is a problem we have been repeatedly hearing about from our clients. Money markets are vital for funds and corporates, ensuring liquidity, risk mitigation, and efficient cash management. Building on our success in the FX market, we&rsquo;ve brought the same model to cash management: direct access to institutional-grade pricing from a marketplace of money market funds on a single platform, with best execution, full transparency, and frictionless transactions all embedded.
&ldquo;Recognising the critical role of analysis and stress-testing in risk management as well as the power of AI, our Co-Pilot offering empowers users with actionable and explainable insight. By simulating different strategies and their financial impact, Co-Pilot helps firms optimise outcomes, minimise risk and make more confident decisions that directly help them protect their bottom lines.
"The expansion of our business and the evolution of our brand are natural next steps, driven by our success to date. We remain committed to continuous innovation to solve key problems in the treasury landscape, with exciting further developments on the horizon."
&nbsp;
<h2>Core FXaaS offering remains central</h2>
MillTech&rsquo;s multi-award-winning <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FX-as-a-Service (FXaaS)</a> solution is trusted by some of the most established investment managers and global corporates to automate operational FX workflows and reduce costs through competitive rates from Tier-1 liquidity providers &mdash; all on a single platform.
<h3>Key challenges addressed by the FX Management solution: </h3>
<ul>
<li>Lack of transparency &ndash; Limited visibility of FX costs (spreads, fees, and market impact) makes achieving best execution difficult.</li>
<li>Lack of counterparty diversity &ndash; Over-reliance on a small number of providers reduces pricing competition and increases risk.</li>
<li>Manual processes &ndash; Manual instruction and post-trade reporting can increase error risk, slow execution, and limit scalability.</li>
<li>Cash flow constraints &ndash; High margin requirements on FX contracts restrict liquidity, and tie up working capital in volatile markets.</li>
</ul>
<h3>Key features:</h3>
<ul>
<li>Cost saving at scale - Over $500 billion traded annually, unlocking FX pricing typically reserved for the largest global institutions.</li>
<li>Broader market access &ndash; Compare FX rates from up to 15 Tier-1 liquidity providers to secure optimal pricing.</li>
<li>Automated workflows - <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">End-to-end automation</a> from multi-bank ISDA onboarding, through to, execution, settlement, and post-trade reporting.</li>
<li>Full transparency &ndash; Embedded, independent <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">transaction cost analysis</a> delivers clear visibility on execution quality and total trading costs.</li>
<li>No margin hedging - Aiming to provide FX hedging solutions without the need for initial or variation margin, helping to preserve working capital.*</li>
</ul>
* *Excludes any required regulatory margin

MillTech expands with Cash Management and Co-Pilot while rebranding to reflect a full treasury solution.

Waves

MillTech expands with Cash Management & AI Co-Pilot

Switzerland is more than just breathtaking alpine views and luxury watches&mdash;it&rsquo;s a financial powerhouse with a unique flair for attracting investors. Known for its stability, the Swiss franc (CHF) has earned a reputation as a safe haven during shaky global times. But even the Swiss economy isn&rsquo;t immune to volatility, as proved in 2024.
The Swiss National Bank (SNB) turned heads early in the year when it became the first major economy to cut rates. In March, the SNB trimmed its policy rate by&nbsp;<a href="https://www.elibrary.imf.org/view/journals/002/2024/180/article-A001-en.xml" target="_blank" rel="noopener">25 basis points to 1.5%</a>, despite inflation being under control. By December, the SNB doubled down with a , aiming to boost the economy further&mdash;a move bound to spark debate.
So, how are Swiss fund managers navigating this shifting monetary landscape? Our&nbsp;newdives into the innovative strategies they&rsquo;re using to hedge against market uncertainty. From adapting to economic changes to cutting back on outdated manual processes that&nbsp;devoured time and resources in 2023.
Curious? Let&rsquo;s take a closer look at the Swiss FX landscape.
&nbsp;
<h2>From hesitation to adoption: The evolution of hedging strategies</h2>
In 2023 94% of Swiss fund managers took proactive steps to hedge against forecastable currency risk, even those who initially chose not to, began reconsidering their stance. Fast forward to 2024, and every single respondent had embraced hedging strategies. Let&rsquo;s dig deeper&hellip;
The hedge game is changing, and fund managers are stepping up their strategy. In 2024, Swiss fund managers made a powerful pivot, adopting long hedge strategies that had previously been shunned. 7 in 10 now hedge 51-75% of their exposure&mdash;a striking move that echoes the 78% who hinted at ramping up hedge ratios back in 2023.
In 2024, a whopping 70% of fund managers were locking in hedges 4-6 months ahead&mdash;a dramatic leap from just 16% the year before, when most played it safe with shorter 1-3 month windows. Now? They're looking even further ahead, with another bold 70% gearing up to extend their hedge durations even more.
Is this confidence in the face of uncertainty or calculated caution? Either way, it&rsquo;s a shift that speaks volumes. Fund managers are moving beyond avoiding market volatility, focusing on smarter hedging strategies and preparing to navigate the unpredictable financial landscape.
&nbsp;
<h2>When markets tremble: How the Credit Suisse collapse reshaped liquidity</h2>
The <a href="https://www.reuters.com/business/finance/credit-suisse-how-did-it-get-crisis-point-2023-03-16/" target="_blank" rel="noopener">2023 Credit Suisse collapse</a> sent shockwaves through global markets, prompting Swiss regulators to strengthen liquidity rules to safeguard financial stability. <a href="https://www.bis.org/bcbs/publ/d555.pdf" target="_blank" rel="noopener">Authorities tightened oversight and introduced enhanced capital requirements</a>, taking effect in 2024. One standout move? Switzerland's&nbsp;financial regulator FINMA, now has the authority to hit banks with custom surcharges, ensuring they meet higher liquidity standards. Unsurprisingly, 70% of fund managers reported in 2024, credit providers had clamped down on lending criteria, making funding harder to secure.
50% of fund managers reported credit providers are slashing fees despite liquidity challenges. With lower interest rates comes fierce competition, consequently banks are likely cutting lending costs for those deemed creditworthy borrowers. A tale of two strategies.
&nbsp;
<h2>Saving time: Automating the chaos of manual processes</h2>
Manual processes have long been the arch-nemesis of fund managers&mdash;tedious, time-draining, and a serious manpower hog. In 2023, a staggering 84% of fund managers admitted to spending 2-3 days wrestling with FX tasks, and an unlucky 13% were stuck dealing&nbsp;it for as long as 4-5 workdays. With groundbreaking tech available to slash this workload, why are so many fund managers still stuck in the pit of manual processes?
It turns out that manual processes are not only still troubling many fund managers but are also becoming more widespread. 60% of Swiss fund managers now cite manual challenges as their biggest obstacle, a significant jump from 38% in 2023. But there&rsquo;s hope on the horizon. The tide is turning, with 6 in 10 fund managers now embracing APIs to handle FX transactions. What&rsquo;s driving this shift? The new T+1 settlement cycle might just be the nudge fund managers needed to finally <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">upgrade their technology</a>, with 60% upgrading to meet the reduced settlement demand.
The message is clear: the days of clunky, time-wasting processes are numbered. As technology sweeps through the industry, Swiss fund managers are starting to trade their old habits for faster, smarter solutions.
Half of asset managers surveyed are now outsourcing their FX operations to enhance , whilst 7 in 10 are now considering automating trade execution and risk identification. Only time will tell, who&rsquo;s prepared to embrace this wave of change&mdash;and who&rsquo;ll get left behind?
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How are Swiss fund managers rethinking their hedging strategies to adapt to the evolving monetary landscape?

Swiss Image

Breaking down FX trends: What’s next for Swiss funds?

The relationship between the United Kingdom and the United States is rooted in a long-standing economic partnership. Both regions, as global financial powerhouses, play significant roles in international trade and investment. Their interconnected economies mean that the FX markets are critical to the efficient functioning of cross-border business activities.
Analysis of our <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">UK</a> and<a href="https://milltechfx.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener"> US</a> Corporate CFO FX Reports 2024, combined with insights from our <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-corporate-hedging-monitor-q4-2024/" target="_blank" rel="noopener">Q4 hedging monitor</a>, highlights that while both regions face common macroeconomic challenges, they encounter unique obstacles and have differing strategic priorities when managing FX operations. Tom Hoyle, Business Development Director here at MillTech, provides his insights into how corporates are adapting to these challenges and reshaping their FX strategies to remain competitive.
In this blog:
<ul>
<li><a href="#fxhedgeratiosanddurations">FX hedge ratios and durations</a></li>
<li><a href="#shifttowardsfxoptions">Shift towards FX options</a></li>
<li><a href="#keyexternalinflucences">Key external influences</a></li>
<li><a href="#driveforautomatedprocesses">Drive for automated processes</a></li>
</ul>
&nbsp;
<h2 id="fxhedgeratiosanddurations">FX hedge ratios and durations</h2>
In Q4, UK corporates raised their average hedge ratio significantly, with 57% of their FX exposure now hedged. This is a notable increase of 9% from Q3, suggesting a stronger emphasis on mitigating currency risk amid economic uncertainty including <a href="https://www.reuters.com/markets/currencies/sterling-falls-after-uk-gdp-unexpectedly-contracts-october-2024-12-13/" target="_blank" rel="noopener">pound fluctuations</a>. Meanwhile, US firms took a steadier approach to hedging in Q4, with an average hedge ratio of 45%.
Firms in both the UK and the US are expressing plans to extend the duration of their hedges, signalling a proactive approach to managing long-term currency risk. However, their strategies diverge when it comes to hedge ratios.
In the US, 39% of corporates intend to reduce their hedge ratios, whilst only 17% of UK firms plan to scale back, with most favouring an increase. This disparity suggests that UK corporates are under greater pressure to manage increased currency volatility and brace for potential economic changes. In contrast, US firms appear more cautious, likely influenced by expectations of a strong dollar. In fact last year, 90% of US corporates reported a positive impact on their bottom lines from the stronger dollar and 92% anticipated that the dollar will continue to strengthen into 2025.
&ldquo;UK corporates increasing their hedge ratios indicates a desire to add a higher level of certainty with their average hedge rates. In doing so, businesses are more protected against the short-term volatility we have seen across the end of 2024 and into 2025. While large FTSE businesses generally have a global footprint, which helps to limit exposure to volatility, on the whole the UK is a net importer of goods, as such, protecting to the downside is a necessity for most.&rdquo; Tom Hoyle, Business Development Director
&nbsp;
<h2 id="shifttowardsfxoptions">Shift towards FX options</h2>
<a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> are rapidly gaining traction as a preferred hedging strategy, with 64% of UK firms last year reporting more frequent use. This surge has been driven by recent low implied volatility, which has made option pricing more affordable and attractive. For businesses navigating uncertain currency markets, FX options offer a flexible way to manage risk without locking in rates like FX forwards.
Looking ahead, this trend shows no signs of slowing down. In fact, 30% of UK and 35% of US firms plan to further increase their use of FX options in 2025, signalling a growing reliance on these instruments to handle currency fluctuations. This shift highlights the increasing importance of dynamic risk-management tools in protecting profit margins.
&nbsp;
<h2 id="keyexternalinflucences">Key external influences</h2>
Credit availability was the leading external factor influencing FX hedging decisions during Q4, in both the US (22%) and the UK (19%). Credit-related issues remain a major challenge, with 30% of UK businesses citing onboarding liquidity providers as their biggest FX challenge last year. Similarly, 31% of US firms pointed to securing credit lines as their top FX challenge, followed closely by obtaining competitive quotes (29%).
The struggles with FX don&rsquo;t end there, with 3 in 4 UK and US businesses reporting losses from unhedged FX risk in 2024. The UK saw a higher proportion of significant losses at 27%, compared to the US&rsquo;s 19%, indicating that while losses were widespread in both regions, they were more severe for UK firms.
&ldquo;We saw signals of a credit tightening cycle during the course of 2024 and it looks set to remain into 2025. The challenge for businesses is &ndash; if required &ndash; how quickly they can onboard / access new liquidity providers on terms that aren&rsquo;t prohibitive e.g. short tenors / high costs. Whether these credit headwinds force businesses to change their approach throughout the course of 2025 remains to be seen, but it is something we will be monitoring closely&rdquo;. Tom Hoyle, Business Development Director
&nbsp;
<h2 id="driveforautomatedprocesses">Drive for automated processes</h2>
The push to <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">automate FX Workflow</a> is gaining momentum, with 41% of UK corporates and % of American businesses naming automation of manual processes their top priority. Despite this focus, many corporates in both regions remain heavily reliant on outdated methods for instructing FX, with phone transactions still dominating&mdash;in the UK and in the US. This disparity highlights a disconnect between aspirations and existing practices, pointing to the challenges of modernising deeply ingrained workflows.
Interestingly, when asked about leveraging AI for FX purposes, every respondent indicated interest. FX risk management emerged as the leading application in both countries, reflecting the critical need for smarter, faster tools to navigate volatile markets.
Looking forward to the next five years, technology is set to revolutionise FX operations, with blockchain and big data analytics leading the charge. In the UK, 23% of industry professionals see blockchain as the most impactful, which can assist to streamline transactions, increase FX transparency, and reduce settlement times. Meanwhile, in the US, point to big data and analytics as the key driver of change, which can be used to deliver insights, enhance FX risk management, and refine trading strategies.
While corporates are still early in their transformation journeys, their enthusiasm for innovation is clear, and emerging technology is poised to play a key role in reshaping FX operations.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Explore how UK and US corporates are reshaping their FX strategies to remain competitive.

Uku Sblog 

FX face-off: How UK and US firms tackle currency risk

Managing FX risk is like maintaining your car&rsquo;s engine. You can skip the annual service and oil changes if everything seems fine, but eventually, a breakdown is inevitable. By the time the warning lights come on, the damage is already costly.
Just like with an engine, proactively managing FX risk keeps things running smoothly and prevents expensive, last-minute repairs. A well-thought-out FX risk management strategy is like traction control on a slippery surface, helping to maintain control and direction as market conditions shift. Without it, companies risk spinning out of control when currency volatility hits.
In this blog, we will delve into recent risk management trends and key strategies for managing FX risks in 2025. In an era of <a href="https://londonlovesbusiness.com/fx-volatility-surges-to-a-15-month-high-amid-market-chaos/" target="_blank" rel="noopener">heightened uncertainty</a>, the ability to steer through volatility isn&rsquo;t just a nice-to have &mdash; it&rsquo;s a necessity for survival and growth.
&nbsp;
<h2>FX risk management strategies</h2>
FX risk management is a comprehensive strategy employed by businesses to protect their profitability and mitigate potential financial losses caused by adverse currency fluctuations. For corporations dealing with multiple currencies, inadequate FX risk management can significantly affect key financial metrics, such as earnings before interest, tax, depreciation, and amortization (EBITDA), ultimately compromising profitability and financial stability.
Corporate treasurers and CFO&rsquo;s can manage FX risk effectively by leveraging a range of strategies, including financial hedging tools, to safeguard their financial positions against unfavourable exchange rate movements caused by currency volatility:
<ul>
<li><a href="#hedgingwithforwardcontracts">Hedging with forward contracts</a></li>
<li><a href="#options">Utilising options to limit downside risk</a></li>
<li><a href="#currencyswaps">Employing currency swaps for flexibility</a></li>
<li><a href="#naturalhedging">Minimising exposure through natural hedging</a></li>
<li><a href="#nettingandofsetting">Consolidating transactions with netting and offsetting</a></li>
<li><a href="#counterpartydiversification">Enhancing FX risk management through counterparty diversification</a></li>
</ul>
&nbsp;
<h3 id="hedgingwithforwardcontracts">Hedging with forward contracts:</h3>
<a href="https://www.milltech.com/resources/glossary/fx-forward" target="_blank" rel="noopener">FX forwards</a> are over-the-counter (OTC) derivatives, which means they are traded directly between two liquidity partners and can therefore be customised around mutual requirements.
Currency forward contracts allow a business to buy or sell an agreed amount of an asset on a future date, at a price determined today. By locking in an exchange rate for the future, businesses can protect their bottom lines against currency volatility.
&nbsp;
<h3 id="options">Utilising options to limit downside risk:</h3>
<a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> are financial derivatives traded over-the-counter (OTC) or, less commonly, on exchanges. They grant the holder the right, but not the obligation, to exchange a specified amount of one currency for another at a predetermined exchange rate (strike price) on or before a specified expiration date, depending on the type of option.
FX option contracts allow businesses to mitigate downside risk while preserving some upside potential. These contracts often carry high premiums due to the option to exit the trade, which is not reimbursed if the trade is not settled.
&nbsp;
<h3 id="currencyswaps">Employing currency swaps for flexibility:</h3>
<a href="https://www.milltech.com/resources/glossary/currency-swap" target="_blank" rel="noopener">FX Swaps</a> are Over-The-Counter (OTC) derivatives used by two counterparties to manage their currency exposures. In an FX Swap, the parties agree to swap a specified notional principal amount in one currency for an equivalent in another currency at the current spot rate. This setup enables the counterparties to hedge against currency risk by securing exchange rates for future transactions.
An FX Swap normally involves two transactions: an immediate exchange of currencies via a spot transaction followed by a reverse exchange using an forward transaction a later predetermined date.
&nbsp;
<h3 id="naturalhedging">Minimising exposure through natural hedging:</h3>
Natural hedging is a strategy businesses use to minimise financial risk by offsetting potential losses with corresponding gains. This approach involves aligning cash flows, assets, or liabilities in the same foreign currency to reduce exposure to exchange rate fluctuations.
Unlike financial hedging, which relies on external instruments like forward contracts or options, natural hedging is an internal risk management technique that does not involve additional costs or reliance on financial markets. By carefully managing operations, such as sourcing materials locally or matching foreign currency loans with international revenues, businesses can effectively reduce their exposure to exchange rate risks while maintaining operational efficiency.
&nbsp;
<h3 id="nettingandofsetting">Consolidating transactions with netting and offsetting:</h3>
Netting simplifies foreign exchange management by consolidating multiple currency transactions into fewer, streamlined transactions. This approach reduces complexity, helps to minimise costs, and is often used within businesses or between subsidiaries to manage and align FX exposures more effectively.
Offsetting takes a different approach to managing FX risk. It involves creating a counter-position to an existing currency exposure, typically by entering into a transaction that offsets potential losses from adverse currency fluctuations, ensuring financial stability amidst market changes.
&nbsp;
<h3 id="counterpartydiversification">Enhancing FX risk management through counterparty diversification:</h3>
In <a href="https://www.milltech.com/resources/glossary/fx-risk-management" target="_blank" rel="noopener">FX risk management</a>, maintaining counterparty diversity is key to reducing credit risk and enhancing resilience. By working with a range of financial institutions, corporates can mitigate exposure to single-party failures, like the collapse of Credit Suisse, and better hedge against market volatility.
Counterparty diversity also promotes competitive pricing, enhanced access to market data, and informed decision-making. Corporates should perform thorough due diligence on counterparties, regularly reviewing their stability and performance to adapt to evolving market conditions.
&nbsp;
<h3>Aligning corporate governance with risk management strategies</h3>
Corporate governance is integral to the effectiveness of FX risk management. Robust governance structures ensure that FX risk management practices are aligned with the corporation's overall strategic objectives and comply with regulatory requirements. This alignment not only safeguards the business against currency volatility but also enhances stakeholder trust and confidence in its financial management practices.
&nbsp;
<h3>Establishing an FX risk management policy</h3>
Developing a comprehensive FX risk management policy enables corporations to address FX risks systematically. Such a policy should clearly define the organisation's risk appetite and incorporate a structured framework for ongoing risk assessment and management reviews. This framework should include regular stress testing and scenario analysis to assess the potential impact of market fluctuations on currency exposure.
To support these efforts, integrating advanced <a href="https://milltechfx.com/clients/corporate-treasurers/" target="_blank" rel="noopener">financial management software</a> can facilitate real-time monitoring of exchange rates, automate reporting, and enhance decision-making capabilities, saving a business valuable time.
&nbsp;
<h2>FX risk management: latest trends</h2>
<h3>Hedging amidst obstacles</h3>
Our recent FX reports indicate that <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">76% of UK</a> and <a href="https://milltechfx.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">82% of North American</a> corporates are employing hedging strategies to manage currency risk, despite facing higher costs and stricter lending criteria over the past year. 
Geopolitical tensions have notably influenced FX risk management in both the UK and North America. In the UK, 53% of businesses aim to lengthen their hedge duration due to global uncertainties. North America was responding even more strongly &nbsp;coming up to the US election, with 66% of firms planning to extend their hedge durations and 29% looking to increase their hedge ratios.
&nbsp;
<h3>Exploring AI for FX risk management</h3>
Manual and outdated FX processes can significantly hinder business efficiency. As a result, firms are increasingly shifting away from traditional providers and legacy infrastructure, replacing them with <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">tech-enabled solutions</a>.
Our research found that all UK and US corporate finance leaders polled (100%) are exploring artificial intelligence (AI) in some form. The main area for potential AI application is FX risk management, with 46% of North American and 43% of UK corporations concentrating on this field.
&ldquo;The genie is well and truly out of the bottle with generative AI and any organisation not thinking about how this technology can enhance their offering risks being left behind. It&rsquo;s clear from the findings that CFOs realise that in today&rsquo;s fast-paced digital landscape, embracing AI-driven innovation is no longer optional but essential for staying competitive&rdquo;. Sam Hunt, CTO at MillTech.
&nbsp;
<h3>Maximising FX efficiency through outsourcing</h3>
FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase often have their own complications and can be a huge administrative burden for some corporates, eating up much-needed time and resources. In fact, 29% of UK respondents said they use outsourcing as it provides greater scalability and flexibility in operations.
Following episodes like the <a href="https://www.reuters.com/article/markets/the-global-fx-rigging-scandal-idUSL5N1F14VV/">&nbsp;</a>, many market principles and regulations were introduced, such as the <a href="https://www.globalfxc.org/uploads/fx_global.pdf" target="_blank" rel="noopener">FX Global Code of Conduct</a> and <a href="https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii" target="_blank" rel="noopener">MiFID II</a>, to avoid crises like this again. Whilst beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met. This is why 29% of UK respondents say that they use outsourcing for risk management and compliance purposes.
&nbsp;
<h2>Managing FX risk through MillTech</h2>
We know that FX hedging is 90% operational and 10% strategy, FX execution infrastructure and <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">workflow automation</a> are critical to limiting hedging costs and ensuring long-term flexibility.
MillTech <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">risk management solution</a> provides an easily integrated fixed-fee service mode, designed for finance teams to effectively identify and manage FX risk. By centralising FX operations, automating trade and settlement workflows, and providing comprehensive downstream reporting, you can trade with confidence knowing your business's balance sheet and income statements are safeguarded.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Delve into recent risk management trends and key strategies for managing FX risks in 2025.

2025 FX risk guide for CFOs & Treasurers

Many fund managers treat FX like people treat dentistry. When there are no signs of pain, it&rsquo;s not a priority &ndash; but when the pain starts, it quickly becomes an emergency.
FX can make or break fund managers&rsquo; returns and have a serious impact on operational costs. In this blog post, we&rsquo;ll discuss the top three FX challenges UK fund managers are currently dealing with, as revealed by <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-fund-manager-cfo-fx-report-2024/" target="_blank" rel="noopener">our latest research</a>, along with strategies to address them.
&nbsp;
<h2>1.&nbsp;&nbsp;&nbsp;&nbsp; Cost calculation &ndash; 37%</h2>
In the world of fund management, calculating the costs associated with FX transactions remains the most significant challenge for fund managers, with 37% identifying it as an issue, an increase from <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-fund-manager-report-2023/" target="_blank" rel="noopener">33% in 2023</a>.
Managing multi-currency portfolios often means handling complex FX conversions, where minute discrepancies in rates can compound significantly over time, eroding overall returns. Unlike other cost elements that are more straightforward, FX costs are inherently dynamic, influenced by volatile currency movements and variable transaction fees.
This unpredictability means that fund managers are constantly seeking ways to more accurately forecast and control FX expenses to maintain their portfolios&rsquo; performance.
The calculation of FX costs is made more challenging by the absence of standardised practices in the industry. Many fund managers rely on multiple liquidity partners, each with unique pricing models, spread markups and fee structures. The lack of transparency in these FX markups can make it difficult for fund managers to understand the true cost of their FX transactions.
So what is the solution?
One possible approach is to implement a comprehensive FX risk management strategy, comprising regular reviews and comparisons of the pricing structures offered by different liquidity providers. This can help fund managers identify potential cost savings opportunities and negotiate better rates. Some solutions can provide fund managers with access to a <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX platform</a>, allowing them to compare live rates from multiple tier-1 liquidity partners, ensuring they gain full transparency on FX costs and helping them to achieve best execution.
Leveraging technology also enables fund managers to automate key FX processes, create detailed reports and analyses of past transactions, and identify patterns and trends in their FX costs.
For example, an independent <a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">transaction cost analysis</a> (TCA) can allow fund managers to assess the true cost of their FX trades by revealing hidden costs in the spread and evaluate their execution quality against market benchmarks, helping to drive more informed decision-making.
&nbsp;
<h2>2.&nbsp;&nbsp;&nbsp;&nbsp; Reliance on manual processes - 36%</h2>
Many fund managers continue to rely on outdated, manual processes for instructing FX transactions, with phone calls and emails remaining the primary methods among UK fund managers. In fact, 77% still depend on these traditional approaches to execute transactions. In North America, fund managers have <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-cfo-fx-report-2024/" target="_blank" rel="noopener">adopted more modern solutions</a>, with APIs (32%) and web apps (30%) being the most popular methods to transact, leaving only 50% still using phones or emails.
Operating FX processes via these manual processes is a huge drain on efficiency and can take up a significant portion of funds&rsquo; manpower and time. It makes no sense to operate with these processes when far more modern alternatives exist. It&rsquo;s the equivalent of sending someone a message via fax in this day and age, rather than a simple text message.
Managing manual processes has been highlighted as a key challenge for UK fund managers in 2024, with 36% reporting it to be a critical issue. However, this appears to be a particularly persistent challenge, with 39% saying this was an issue in 2023.
Smaller funds (&pound;40-80 million assets under management) also relied more heavily on manual processes than larger funds (&pound;9-16 billion AUM), with 38% instructing over email and 44% over the phone, in comparison to 21% and 36% respectively. This underscores a major gap between smaller and larger funds in adopting automation technology for their FX processes, likely due to limited resources, expertise and tighter budgets, creating constraints on investing in such technology.
For those looking for <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">alternatives</a>, they may find solutions in the below:
<ul>
<li>API&rsquo;s (31%): APIs serve as bridges, enabling different software systems to communicate and in turn exchange data. Leveraging APIs for FX transactions allows businesses to automate trade execution by integrating an FX platform into their own systems.</li>
<li>Online User interface (28%): 3rd Party Web Apps, are software applications, designed and built by 3rd parties, accessed through a web browser.</li>
<li>Instructing via your own IT system (26%)</li>
</ul>
&nbsp;
<h2>3.&nbsp;&nbsp;&nbsp;&nbsp; Onboarding new liquidity providers - 34%</h2>
The onboarding process for new liquidity partners is often still outdated and cumbersome, causing a great deal of trouble for fund managers. Protocols often require vast amounts of paperwork and securing ISDA agreements, a time consuming process which can take months, often draining time and manpower. This process can be even more challenging for small and medium-sized fund managers who do not have the resources to navigate through complex legal agreements and compliance requirements.
To solve this issue, 20% of fund managers are considering automating the onboarding of liquidity providers, to streamline the process. Partnering with FX technology providers can bring this lengthy process down to only a few weeks through express ISDA agreements. This not only enables faster setup of FX counterparties but also facilities FX cost savings by accessing multiple new liquidity streams more quickly.
&nbsp;
<h3>How can MillTech help?</h3>
Our FXaaS provides fund managers with an automated <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">FX workflow solution</a>, allowing them to seamlessly instruct trades and oversee their hedging programs. Fund managers can also choose to outsource FX operational functions, including hedging calculation, execution management, settlement, and trade reporting to save time.
Moreover, our free quarterly <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">transaction cost analysis</a> provides fund managers with full transparency into their FX costs and provides insights on how to optimise trade execution techniques.
If you&rsquo;d like to learn more about our solutions, you can request a demo <a href="https://milltechfx.com/demo-form/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Discover the top 3 FX challenges UK fund managers face today and strategies to overcome them, based on our latest research.

V1  

Top 3 FX challenges facing UK fund managers

With global inflation remaining <a href="https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024" target="_blank" rel="noopener">relatively high</a>, the cost of doing business has <a href="https://www.leasinglife.com/comment/the-rising-cost-of-doing-business-in-the-uk-a-snapshot-of-sme-financial-strain/" target="_blank" rel="noopener">continued to rise</a>. FX hedging was no exception to this, our <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">UK</a> corporate FX report revealed that 7 in 10 (70%) of corporates struggled with an increase in the cost of FX hedging over the last year.
Rising costs were also the primary reason for not hedging FX currency risk, with 76% stating that it was simply too expensive.
In this blog, we delve into the some of the key FX challenges confronting UK corporates and examine the strategies they are employing to overcome these hurdles:
<ul>
<li><a href="#risingcreditchallenges">UK Corporates facing rising credit challenges</a></li>
<li><a href="#hedgingstrategies">Hedging strategies amongst geopolitics tensions</a></li>
<li><a href="#FXoptions">Corporates are turning to FX options</a></li>
</ul>
&nbsp;
<h2 id="risingcreditchallenges">UK Corporates facing rising credit challenges</h2>
The majority of UK corporates reported that their current credit provider had tightened lending criteria over the past year, with 74% experiencing stricter lending conditions, of which 27% noted a significant tightening.
Smaller businesses felt the impact more acutely, with 87% facing&nbsp;stricter lending criteria compared to only 59% of larger businesses.
The tightening doesn't end there, as 79% of UK corporates have also reported recent hikes in interest rates and fees from their credit providers. This increase was notably observed among CFOs and finance managers, with 88% reporting a spike within both roles. While larger firms may not feel the impact of stricter credit terms as severely, they have experienced the highest increase in fees, with 4 in 5 businesses noting a rise.
Tighter lending criteria is a common feature of turbulent economic times. If the average corporate earnings take a downturn, then lenders perceive a higher risk of defaulting on loans, causing them to allow only the most creditworthy companies to borrow, particularly given higher interest rates. This tends to cause liquidity headaches and restricted investment opportunities.
&nbsp;
<h2 id="hedgingstrategies">Hedging strategies amongst geopolitics tensions</h2>
As an economic superpower, what happens in the US impacts the rest of the world. This is especially the case in the UK, with the US being their <a href="https://assets.publishing.service.gov.uk/media/672200084da1c0d41942a8ee/united-states-trade-and-investment-factsheet-2024-11-01.pdf" target="_blank" rel="noopener">largest trading partner</a>, so it is no surprise that their 2024 election caused additional concerns.
Prior to Trump being re-elected into The White House, when asked what their primary concerns were regarding currency risk in the context of the US election, UK corporates main responses were all focused around the idea of uncertainty; counterparty risk in hedging transactions (40%), the impact of policy changes on currency values (37%) and unpredictable market movements (37%). So now the election is over, how are UK corporates feeling?
Our latest <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-corporate-hedging-monitor-q3-2024/" target="_blank" rel="noopener">hedging monitor</a> revealed that 4 in 5 (81%) UK corporates feel optimistic about how the newly elected Trump administration will affect their operations and strategic plans in the US over the upcoming year, despite concerns around potential tariffs and trade tensions.
In response to the election results, 9 out of 10 (94%) have adjusted their FX hedging strategies. The majority of them opting to increase both their hedge ratios and the duration of their hedging activities, which essentially means buying more protection for longer, underscoring a desire among corporates to secure certainty amid market volatility.
&nbsp;
<h2 id="FXoptions">Corporates are turning to FX options</h2>
As finance leaders grow increasingly aware of the impact currency volatility has on their balance sheets, they are exploring new FX hedging strategies to protect their bottom lines against these fluctuations. One such strategy is to use FX options, which 64% of corporates have started utilising more frequently.
<a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> are financial derivatives traded over-the-counter (OTC) or exchange traded. They grant the holder the right, though not the obligation, to exchange two currencies at a pre-determined exchange rate (known as the strike price) on, or before, a specified expiration date.
FX options offer the benefits of hedging with limited downside risk, as the buyer is not obligated to buy or sell an asset, limiting the maximum loss to the premium paid for the option. However, this upfront premium is typically high due to the instrument's flexibility and is non-refundable if the trade does not go through.
<blockquote>
&ldquo;Historically corporates have experienced a negative impact on their balance sheet through currency fluctuations. As macroeconomic conditions evolve and potentially lead to increased currency volatility, they are becoming more aware of the effects on their balance sheets. Consequently, their decision to hedge using options is often influenced by the attractive (low) volatility levels observed in Q2/Q3 compared to the anticipated higher future currency movements.&rdquo; Nick Wood, Head of Execution at MillTech and Millennium Global.
</blockquote>
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Explore key FX challenges for UK corporates and the strategies used to tackle them.

Checklist Blog 

UK Corporate credit crunch: 74% report tighter FX lending

Over the years, outsourcing FX has emerged as a prominent trend in business operations, and this year has proven to be no exception. As UK CFOs have battled against <a href="https://londonlovesbusiness.com/fx-volatility-surges-to-a-15-month-high-amid-market-chaos/" target="_blank" rel="noopener">heightened currency volatility</a> and <a href="https://www.imf.org/en/Blogs/Articles/2024/04/16/global-economy-remains-resilient-despite-uneven-growth-challenges-ahead" target="_blank" rel="noopener">uneven global economic growth</a>, with advanced economies <a href="https://www.imf.org/en/Blogs/Articles/2024/04/16/global-economy-remains-resilient-despite-uneven-growth-challenges-ahead" target="_blank" rel="noopener">experiencing slowdowns.</a>
A recent <a href="https://yougov.co.uk/economy/articles/25965-seven-ten-british-businesses-outsource-third-parti" target="_blank" rel="noopener">YouGov study</a> revealed that 70% of British businesses are now turning to outsourcing solutions, this is backed up by our own survey in which all corporate respondents stated they outsourced FX processes in some capacity.
In this blog post, we will explore how businesses are outsourcing their FX to optimise operations and maintain a competitive edge:
<ul>
<li><a href="#flexibility">Achieving operational flexibility</a></li>
<li><a href="#drivefficiency">Drive efficiency and accelerate automation</a></li>
<li><a href="#fxriskmanagement">FX risk management</a></li>
<li><a href="#operationalcosts">Reducing operational costs without sacrificing quality</a></li>
<li><a href="#milltechfx">Outsourcing FX processes with MillTech</a></li>
</ul>
&nbsp;
<h2 id="flexibility">Achieving operational flexibility</h2>
FX is one of the <a href="https://www.reuters.com/markets/us/global-fx-trading-hits-record-75-trln-day-bis-survey-2022-10-27/" target="_blank" rel="noopener">largest and most liquid</a> markets in the world, but also one of the most complex. Managing a variety of hedging instruments to counter market volatility, undergoing lengthy ISDA onboarding processes, and ensuring adherence to regulatory compliance, can be daunting for some businesses, especially those lacking the necessary infrastructure for effective FX operations.
In fact, <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">29% of UK corporates</a> have turned to outsourcing as it provides greater scalability and flexibility in operations. Outsourcing can provide the flexibility to scale FX services according to the business&rsquo;s needs, without committing to long-term resource allocation. This scalability ensures that firms only pay for the services they require, optimising cost-effectiveness as their foreign exchange volume fluctuates.
Increased scalability can be realised by corporates gaining access to specialised expertise and advanced technology without the need to invest heavily in in-house capabilities. This can enable them to handle larger currency volumes and mitigate FX risks more effectively as they grow.
&nbsp;
<h2 id="drivefficiency">Drive efficiency and accelerate automation</h2>
In today&rsquo;s highly competitive landscape, businesses that prioritise efficiency are often better equipped to adapt to changing markets. 26% of UK corporates delegate FX responsibilities to an external provider to increase efficiency, which typically includes overseeing the onboarding of new FX counterparties, centralising price discovery, and managing the post-execution phase.
Alongside the drive to increase efficiency, reducing manual tasks has become a key focus, with process automation emerging as a top priority in FX operations. Despite this, many businesses continue to rely on outdated technology for their in-house FX operations, with 42% of CFOs using phones as their main method for instructing FX transactions.
Additionally, fragmented service provision remains a challenge for 27% of corporates, with CFOs identifying it as one of their main FX hurdles.
By outsourcing FX operations to specialists, corporates can gain seamless access to real-time rates from a broad network of liquidity sources, all integrated into a single platform. This consolidation enables corporates to achieve best execution with improved transparency, frees up internal resources, and additionally ensures that regulatory governance requirements are met, providing assurance to key stakeholders.
&nbsp;
<h2 id="fxriskmanagement">FX risk management</h2>
Our findings indicate that 29% of UK corporates opt to outsource foreign exchange operations due of the complexities involved in risk management and compliance. Following episodes like the <a href="https://www.reuters.com/article/markets/the-global-fx-rigging-scandal-idUSL5N1F14VV/" target="_blank" rel="noopener">forex rate-rigging scandal</a> in 2014, many market principles and regulations were introduced, such as the <a href="https://www.globalfxc.org/uploads/fx_global.pdf" target="_blank" rel="noopener">FX Global Code of Conduct</a> and <a href="https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii" target="_blank" rel="noopener">MiFID II</a>, to avoid crises like this again. Whilst these may be overall beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met.
In addition, significant market volatility and exchange rate fluctuations require sophisticated strategies to manage effectively. This often demands substantial resources, expertise, and technology, which can be especially challenging for small to medium-sized enterprises. Furthermore, the need to stay informed about geopolitical events and economic policies adds another layer of complexity, making it harder for businesses to plan long-term risk management strategies and predict future costs accurately.
&nbsp;
<h2 id="operationalcosts">Reducing operational costs without sacrificing quality</h2>
Across the UK, many individuals have felt the pinch of tighter budgets, and businesses are no exception. 70% of corporates reported an increase in the cost of hedging over the last year. In addition, a stagging 79% reported a recent increase in interest rates and fees from credit providers, noticed most by accountants and CFOs, with 88% reporting a spike within both roles.
Businesses are highly likely to be exploring various cost-cutting strategies, with 22% opting for outsourcing. By leveraging advanced platforms that provide competitive pricing from multiple partners, firms can be confident they are achieving best execution on every trade, from spot to forwards.
Some providers include free transaction cost analysis in their services, revealing hidden costs in the spread and offering corporates insights into their trading performance. This analysis provides guidance on improving FX execution techniques and identifies risks and inefficiencies in trading, allowing for proactive strategy refinement and risk mitigation.
&nbsp;
<blockquote>
&ldquo;It is no surprise to see that corporates seek to outsource their FX execution and operational requirements to a dedicated and tech-enabled FX expert. This can provide them with transparency into their execution quality via transaction cost analysis and to manage all their FX operational requirements, allowing them to focus on their core product expertise and processes.
James Hull, COO at MillTech&rdquo;
</blockquote>
&nbsp;
<h3 id="milltechfx">Outsourcing FX processes with MillTech</h3>
Our multi-award winning independent <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FXaaS solution</a> is designed to significantly reduce FX hedging costs for corporates and ensure they achieve FX transparency.
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Building on this heritage we are able to provide corporates with direct access to preferential FX rates from up to 15 Tier-one counterparty banks.
By outsourcing your FX processes with MillTech, you can:
<ul>
<li>Enhance FX risk management through diversifying counterparties</li>
<li>Automate end-to-end FX processes including execution, settlement and trade reporting</li>
<li>Obtain express ISDA onboarding</li>
<li>Auto-settle trades via SWIFT</li>
<li>Audit the quality of your FX execution and demonstrate good governance with free third-party TCA&rsquo;s.</li>
</ul>
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How are businesses outsourcing their FX to maintain a competitive edge?

Fx Outsource

The power of FX outsourcing & automation

In today's economic landscape, UK businesses are grappling with a significant dilemma&mdash;how best to manage the financial risks associated with currency volatility.
With <a href="https://www.imf.org/en/Blogs/Articles/2023/10/10/higher-for-longer-interest-rate-environment-is-squeezing-more-borrowers" target="_blank" rel="noopener">higher borrowing costs</a> squeezing margins, businesses must weigh the advantages of hedging against the operational and financial challenges it presents.
A well-thought-out hedging strategy is like traction control on a slippery surface, helping to maintain control and direction as market conditions shift. Without it, businesses risk spinning out of control when volatility hits.
This blog explores these challenges and offers insights into how corporates can effectively safeguard their bottom lines:
<ul>
<li><a href="#hedginglandscape">Understanding the current hedging landscape</a></li>
<li><a href="#benefits">Benefits of hedging in a volatile market</a></li>
<li><a href="#constraints">High costs and credit constraints</a></li>
<li><a href="#futurehedging">Navigating the future of hedging</a></li>
<li><a href="#outsourcing">Outsourcing FX Functions</a></li>
</ul>
&nbsp;
<h2 id="hedginglandscape">Understanding the current hedging landscape</h2>
Our revealed that hedging remains prevalent among UK corporates, with 76% of firms hedging their forecastable currency risk.
Interestingly, large businesses with over 500 employees are the least likely to hedge (68%), possibly due to their larger reserve capital, which cushions them from currency fluctuations. Conversely, smaller firms, which often lack such buffers, are more inclined to hedge.
In today's <a href="https://londonlovesbusiness.com/fx-volatility-surges-to-a-15-month-high-amid-market-chaos/" target="_blank" rel="noopener">volatile economic climate</a>, corporates are increasingly seeking stability, the mean hedge length has increased to 5.55 months, up from 3.78 months last year, indicating a growing desire among firms to secure longer-term certainty. Whilst the average hedge ratio remained stable at 45%.
&nbsp;
<h2 id="benefits">Benefits of hedging in a volatile market</h2>
<a href="https://www.milltech.com/resources/glossary/fx-hedging" target="_blank" rel="noopener">FX hedging</a> is an effective risk management strategy for businesses exposed to foreign currency, helping to safeguard financial positions against adverse exchange rate fluctuations. Given current market conditions, 68% of UK corporates that don&rsquo;t current hedge, are now considering this strategy.
<h3>Enhancing financial stability through forecasting</h3>
Hedging offers businesses the flexibility to plan ahead and safeguard their balance sheets against anticipated currency fluctuations. By improving forecasting accuracy, it provides greater predictability in financial planning.
It is therefore understandable that 53% of UK corporates are now planning to extend their hedge duration due to rising political tensions. By locking in exchange rates for future transactions, firms can improve budgeting with accurate cash flow estimates, enabling informed strategic decisions and leading to more stable financial results.
<h3>Variety of hedging instruments</h3>
With the various hedging instruments available, corporates have the flexibility to choose how to manage their currency risks.
<a href="https://www.milltech.com/resources/glossary/fx-forward" target="_blank" rel="noopener">Forward contracts</a>, for instance, allow corporates to exchange two different currencies at a predetermined rate on a specific future date, with the rate being set at the start of the contract, providing certainty in costs and revenues despite market fluctuations.
On the other hand, <a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">option contracts</a> offer more flexibility, giving businesses the right, but not the obligation, to exchange currency at a predetermined rate, which can be beneficial if market conditions change favourably, although they often come with pricey premiums.
Each hedging instrument has distinct features and requirements, allowing businesses to tailor their <a href="https://www.milltech.com/resources/glossary/fx-risk-management" target="_blank" rel="noopener">FX risk management</a> strategies to suit specific needs and market conditions.
&nbsp;
<h2 id="constraints">High costs and credit constraints</h2>
<h3>Increased cost of hedging</h3>
70% of UK corporates have reported an increase in the cost of FX hedging over the past year. Of those firms that don&rsquo;t hedge their currency risk, 76% cited high costs as the primary deterrent.
This issue is particularly pronounced among smaller companies with 50-99 employees, with 85% experiencing rising hedging costs compared to 59% of larger firms with over 500 employees. This may be due to smaller companies having less negotiating power and fewer resources to manage financial risks effectively.
The increasing costs of hedging are not just affecting decision-makers; they directly influence corporate priorities. For 31% of UK corporates, reducing costs is a top priority, while 29% emphasise the need for cost transparency. These figures underscore the weight of FX costs on corporate strategies and how they can even discourage proactive risk management.
<h3>Stricter credit market</h3>
Concurrently, UK businesses are facing a tightening credit market. An overwhelming 74% of corporates report that credit providers have made it harder to access hedging in the last year. This trend has been most acute for accountants and CFOs, with 85% experiencing stricter lending criteria. Smaller companies are again at a disadvantage, with 87% reporting tougher credit conditions, compared to 59% of larger firms.
Additionally, 79% of corporates have noticed a rise in interest rates and fees, a sentiment echoed by 88% of accountants and CFOs. This financial environment adds another layer of complexity for businesses contemplating hedging as a strategy to mitigate currency risk.
&nbsp;
<h2 id="futurehedging">Navigating the future of hedging</h2>
<h3>Corporates turn to options</h3>
Diversifying hedging instruments is crucial to reducing FX risk, by spreading exposure across different assets, corporates can minimise the impact of market volatility, and enhance the potential for more stable returns.
FX options are a financial derivative that grants the holder the right, but not the obligation, to exchange a specified amount of one currency for another at a predetermined exchange rate (strike price) on or before a specified date (expiration date).
Options can provide the reassurance of hedging with capped downside risk, it is therefore unsurprising that 64% of corporates have started utilising FX options more frequently.
<h3>Leveraging FX technology</h3>
Many corporates still cling to outdated, manual processes like phone calls (34%) and emails (32%) to instruct FX trades.
Leveraging technology can help businesses <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">automate their entire FX workflow</a>, from execution to reporting, freeing up resources to focus on core business activities and enhancing team efficiency. For UK corporates, automating manual processes is a priority in FX management, as 41% emphasise its significance.
<h3>Engaging with various credit providers</h3>
Relying on one or two counterparties for liquidity is like putting all your eggs in one basket. As seen in the <a href="https://www.bis.org/bcbs/publ/d555.htm">2023 banking crisis</a>, the loss of a key counterparty can leave businesses stranded, unable to trade. Businesses should explore technology-driven alternatives that diversify their liquidity providers, ensuring they&rsquo;re never vulnerable to a single point of failure.
Additionally, working with various counterparties allows you to leverage competitive pricing, helping to drive down costs and ensuring you best execution.
&nbsp;
<h2 id="outsourcing">Outsourcing FX Functions</h2>
<a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Outsourcing FX functions</a> can be a strategic move for corporates looking to focus on their core operations while managing currency-related risks efficiently. By partnering with specialised FX service providers, businesses can access expert insights, advanced technology, and comprehensive market analyses without the need to maintain an extensive in-house FX team.
Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase often have their own complications and can be a huge administrative burden for some corporates, eating up much-needed time and resources. In fact, 34% of UK respondents said they use outsourcing as it provides greater scalability and flexibility in operations.
Following episodes like the <a href="https://www.reuters.com/article/markets/the-global-fx-rigging-scandal-idUSL5N1F14VV/" target="_blank" rel="noopener">forex rate-rigging scandal</a> in 2014, many market principles and regulations were introduced, such as the <a href="https://www.globalfxc.org/uploads/fx_global.pdf" target="_blank" rel="noopener">FX Global Code of Conduct</a> and <a href="https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii" target="_blank" rel="noopener">MiFID II</a>, to avoid crises like this again. Whilst overall beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met. This is why 29% of respondents say that they use outsourcing for risk management and compliance purposes.
&nbsp;
<h2>Conclusion</h2>
In a world of economic uncertainty, hedging remains a powerful tool for protecting your bottom line. However, rising costs and credit constraints present significant challenges that require strategic navigation. By adopting a comprehensive approach that balances risk management with financial agility, UK corporates can position themselves to thrive amidst volatility.
If your organisation is grappling with these decisions, you can contact us here to discuss how can provide a tailored <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">FX workflow solution</a> to meet the needs of your business. In these times, the right guidance can make all the difference.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

This blog offers insights into how corporates can safeguard their bottom lines through hedging.

Hedge or Not

To hedge or not? Navigating FX market swings

<a href="https://www.milltech.com/resources/glossary/transaction-cost-analysis-tca" target="_blank" rel="noopener">Transaction Cost Analysis (TCA) </a>plays a crucial role in modern FX risk management, offering insights into execution quality, cost efficiency, and overall performance. Whether you're a corporate treasurer or CFO at a fund manager, the ability to assess trade execution across a portfolio and identify cost-saving opportunities is invaluable.
Despite the obvious benefits, there are still a lot of misconceptions preventing CFOs and Treasurers from implementing TCA. In this article, we will dispel some of the top myths surrounding TCA.
In this article:
<ul>
<li><a href="#tcaistooexpensive">TCA is too expensive</a></li>
<li><a href="#mybankpartnerstcaisindependent">My banking partner's TCA is independent</a></li>
<li><a href="#tcaisonlyaboutcost">TCA is only about cost</a></li>
<li><a href="#tcaonlyneedstobedoneonce">TCA only needs to be done once</a></li>
<li><a href="#tcaisawasteoftime">TCA is a waste of time</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="tcaistooexpensive">TCA is too expensive</h2>
Transaction Cost Analysis (TCA) is often perceived as too expensive, but in reality, it offers significant value that justifies its cost.
TCA provides firms with detailed insights into the true costs of their foreign exchange (FX) transactions, including hidden fees, poor execution timing, and uncompetitive spreads. By identifying these inefficiencies, firms can make more informed decisions and improve execution, ultimately saving money over time.
CFOs and treasurers often misunderstand the ROI of TCA. The long-term value of TCA, which is the potential savings and optimisation of FX execution, can be difficult to quantify upfront. This leads to a common misconception that the costs of TCA are too high compared to the immediate, visible benefits.
For example, even a small improvement in FX execution&mdash;such as better timing or a reduced spread&mdash;can translate into substantial savings, particularly for firms with high FX volumes. Over time, TCA helps reduce slippage and improve trade execution, potentially allowing firms to make a quick return on their initial investment.
There is a way to avoid these initial setup costs &ndash; by outsourcing your TCA. Outsourcing TCA is often more cost-effective than maintaining an in-house team. Independent providers offer specialised expertise and advanced tools, allowing businesses to focus on their core activities while still benefiting from high-quality TCA services. External providers, such as MillTech, offer a host of FX risk management products, with TCA built into this offering.
&nbsp;
<h2 id="mybankpartnerstcaisindependent">My banking partner&rsquo;s TCA is independent</h2>
If firms wish to implement TCA into their workflow, they must first decide whether to conduct TCA in-house or independently, as there are key differences between the two. Banking partners often provide TCA as part of a relationship but is this really independent? It&rsquo;s akin to a student marking their own homework.
Independent TCA provides an outsider&rsquo;s perspective, ensuring that the analysis is free from internal biases or conflicts of interest. This impartiality is crucial when presenting data to external stakeholders, regulators or auditors. Moreover, independent providers specialise in TCA and are equipped with advanced analytical capabilities, ensuring that clients benefit from the most up-to-date technology and industry practices.
Independent TCA providers also have access to a broader range of market data and industry benchmarks, which enables them to conduct more comprehensive analysis. Their rigorous data validation and quality control processes help to optimise the reliability of the results, aiming togive clients confidence in the accuracy of the analysis. Additionally, many independent TCA providers adhere to regulatory standards, helping firms meet compliance requirements and reduce regulatory risks.
Independent TCA also serves as third-party verification, providing an added layer of transparency and accountability that is especially valuable during audits or external reviews and for maintaining stakeholder trust.
&nbsp;
<h2 id="tcaisonlyaboutcost">TCA is only about cost</h2>
You would be forgiven for thinking that TCA just covers costs, after all, it is called Transaction Cost Analysis. However, TCA in FX goes far beyond just simple cost analysis. While its primary function is to examine and reduce the direct costs of trading, TCA also plays a broader role in enhancing overall FX execution strategy, risk management, and transparency.
One of the key benefits of TCA is its ability to improve execution quality. By analysing the timing of trades, market conditions, and liquidity, TCA provides insights that help firms optimise when and how they execute transactions, leading to better pricing and reduced market impact. This strategic advantage can significantly enhance a firm&rsquo;s FX operations.
Furthermore, TCA contributes to governance and compliance. In an increasingly regulated environment, firms need to demonstrate that their FX trading practices align with best execution policies. TCA provides the necessary data to validate that trades are being executed efficiently and in the best interest of the firm, ensuring compliance with regulatory requirements.
TCA also offers benchmarking capabilities, allowing firms to compare their execution performance against market standards or peers. This continuous evaluation helps refine trading strategies, improving both cost and operational efficiency over time.
&nbsp;
<h2 id="tcaonlyneedstobedoneonce">TCA only needs to be done once</h2>
For TCA to work effectively, it must be done regularly. Market conditions, liquidity, and spreads fluctuate frequently, which means past trade performance may not reflect current realities. By keeping TCA as a regular part of their operations, firms can consistently enhance performance and manage FX risks effectively.&lt;/p&gt; &lt;p&gt;You should be provided with independent TCA on a quarterly basis, acting as a regular audit of all trades executed through our platform. This ongoing analysis enables clients to monitor their FX execution costs and assess their trading performance over time. By observing historical trends, our clients gain insights into long-term performance, which helps them refine their strategies and make adjustments as needed. We provide not only the data but also the opportunity for clients to discuss their TCA results with an FX specialist, ensuring transparency and addressing any concerns or areas for improvement.
<h2>&nbsp;</h2>
<h2 id="tcaisawasteoftime">TCA is a waste of time</h2>
TCA is far from a waste of time &ndash; as proven by all the points above. It provides critical insights into the efficiency of FX transactions, helping to eradicate hidden costs and inefficiencies, allowing CFOs and treasurers to optimise their trade execution and ultimately reduce their costs and enhance FX performance.
&nbsp;
<h3>Get your free TCA with MillTech</h3>
If you currently do not conduct <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">TCA </a>analysis at your firm, we can help. For prospective clients, we offer a free, independent TCA, which provides an in-depth analysis of their current trading setup. This uncovers any hidden costs and inefficiencies in their trading strategies, offering a clear cost comparison between MillTech&rsquo;s execution quality and the client&rsquo;s current setup.
This free analysis empowers prospects to make data-driven decisions and improve their trading setup, whether they choose to onboard with us, or not. Like with existing clients, prospective clients also get access to one of our specialist FX consultants, to provide further guidance.
These full FX audits are incredibly comprehensive and begin to give prospective clients an idea of how their TCAs could look if they choose to onboard. Our expert FX consultants talk through each aspect of the analysis, giving an opportunity for prospective clients to ask questions about their FX setups, ensuring they completely understand their FX workflows and the best ways to reduce costs and enhance efficiency.
If you are interested in a free TCA report for your company, speak to us directly or reach out to a member of the team at: <a class="Link-module--link--464dc link" title="Send us an email" href="mailto:info@milltechfx.com" target="_blank" rel="noopener">info@milltech.com</a>
<h2 id="tcaonlyneedstobedoneonce"></h2>

Despite the obvious benefits, there are still misconceptions preventing businesses from implementing TCA.

V1   

The truth behind the 5 biggest myths about TCA

MillTechFX was named &lsquo;The World&rsquo;s Best FX Risk Management Solution&rsquo; in the <a href="https://www.euromoney.com/awards/foreign-exchange-awards" target="_blank" rel="noopener">Euromoney Foreign Exchange Awards 2024,</a> held on Thursday 26th of September 2024 at the Mandarin Oriental Hyde Park in London.
The Euromoney FX Awards represent the next iteration of the&nbsp;Euromoney Foreign Exchange Survey, which for more than 44 years stood as the most comprehensive representation of the wholesale FX market. The awards bring together the industry&rsquo;s best and brightest to celebrate excellence in the global FX market.
The award entries were judged by a <a href="https://www.euromoney.com/awards/foreign-exchange-awards-judging-panel" target="_blank" rel="noopener">panel of global experts</a> representing banks, providers and buy-side corporations who sought robust examples of excellence and innovation in the market.
Eric Huttman, CEO at MillTech, said: &ldquo;With <a href="https://www.weforum.org/press/2024/01/wef24-chief-economist-outlook-january-2024/#:~:text=Chief%20Economists%20Outlook%3A%20More%20Economic%20Uncertainty%20on%20the%20Horizon,-Published&amp;text=More%20than%20half%20(56%25),the%20latest%20Chief%20Economists%20Outlook." target="_blank" rel="noopener">rising&nbsp;global economic uncertainties</a>,&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.ft.com_content_f76884e9-2Dbc66-2D4a5d-2D8445-2D4f842af5ef68&amp;d=DwMFaQ&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=ZaHlUkhTCnqlKdmo89kgn0rNNeSj0kI9WMVDdDBVDqF-J1zxIJJ783Z8BVp6boHm&amp;m=V4ki6JiW1CC7OdDVtXBhqTTLoumupiyP11yXrOzr7PXmKkSDgdIe-JMTBeKpdQtI&amp;s=J1r2Nulh18CCen2x-qcttoN5KkPKrKjxXw5aX9Q2gqQ&amp;e=" target="_blank" rel="noopener">shifting monetary policies</a>, and&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.economicsobservatory.com_how-2Dare-2Dgeopolitical-2Drisks-2Daffecting-2Dthe-2Dworld-2Deconomy&amp;d=DwMFaQ&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=ZaHlUkhTCnqlKdmo89kgn0rNNeSj0kI9WMVDdDBVDqF-J1zxIJJ783Z8BVp6boHm&amp;m=V4ki6JiW1CC7OdDVtXBhqTTLoumupiyP11yXrOzr7PXmKkSDgdIe-JMTBeKpdQtI&amp;s=i0gkyVwan8wruF-_CfFHvsiTUDhn90w1gUTa9ce5sxw&amp;e=" target="_blank" rel="noopener">geopolitical events</a>, the significance of tech-enabled FX risk management cannot be overstated. Winning this award is a powerful testament to the MillTechFX team's unwavering dedication and commitment. It also underscores the enhanced transparency, robust governance and efficiency benefits that our FX-as-a-Service model delivers."
<a href="https://www.bloomberg.com/news/articles/2024-04-15/usd-currency-volatility-is-back-as-geopolitics-adds-to-dollar-bets?sref=ix7Z3iHU" target="_blank" rel="noopener">As volatility returns to the FX market</a>, it&rsquo;s vital that corporates and fund managers take a proactive approach to FX risk management to protect their returns. However, when it comes to FX risk management, these firms have historically struggled due to a lack of transparency, limited market access, inconsistent pricing and manual operational tasks.
At MillTech, we are levelling the playing field for these firms by automating the FX process from initial price discovery right through to reporting at the end of the trade lifecycle.
We provide:
<ul>
<li>Easy and quick onboarding &ndash; Rather than spending months (even years) setting up multiple FX facilities with different counterparties, firms can sign up to a multi-bank marketplace and transact within weeks with up to 15 Tier 1 counterparty banks.</li>
<li>Best execution and hedging management &ndash; Clients benefit from multi-bank access without having to manage multiple relationships and processes. They can transparently compare and execute FX rates from multiple providers on a single marketplace and ensure best execution with a simple click of a button.</li>
<li>Cost savings &ndash; MillTech&nbsp;has saved clients up to 70% on their execution costs.</li>
<li>Transparency &ndash; MillTech offers a fixed fee service, including third-party Transaction Cost Analysis (TCA) to ensure total cost transparency.</li>
</ul>
As a result of the growing priority of FX risk management from senior finance decision-makers across the globe, combined with their desire for a transparent, operationally simple solution, we have experienced rapid growth in recent years.
MillTech&rsquo;s annualised client FX volumes now exceed $200 billion, while our revenue grew 6x year on year in 2023 and is expected to double this year.
If you&rsquo;re interested in finding out more about the &lsquo;The World&rsquo;s Best FX Risk Management Solution&rsquo;, get in touch today: <a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">https://milltech.com/contact/</a>&nbsp;&nbsp;

We are delighted to announce we have been named ‘The World’s Best FX Risk Management Solution’ in the Euromoney Foreign Exchange Awards 2024!

Euromoney 4

MillTechFX wins 'World’s Best FX Risk Management Solution'

Michael King

The day-to-day reality of software delivery is often a lot less glamorous than is portrayed by start-up hustle-culture influencers.
A new business with a good idea might spend 20% of its time on developing the features that make it unique. The remaining effort is usually spent removing blockers for new customers to say yes. These blockers are often unsexy, standard features of platform maturity - think user permissions, or ISO security requirements, or data export functionality.
But in amongst the less newsworthy items, there are still some exciting things to shout about. Here&rsquo;s a round-up of new functionality from the last year.
&nbsp;
In this blog:
<ul>
<li><a href="#automaticcounterpartyassignment">Automatic counterparty assignment</a></li>
<li><a href="#assessingpositionimpactpretade">Assessing position impact pre-trade</a></li>
<li><a href="#flexiblereports">Flexible reports</a></li>
<li><a href="#approvalsandselectinganexecutiontime">Approvals and selecting an execution time</a></li>
<li><a href="#fatfingerlimits">Fat finger limits</a></li>
<li><a href="#wherenext">Where next?</a></li>
</ul>
&nbsp;
<h2 id="automaticcounterpartyassignment">Automatic counterparty assignment</h2>
Whilst the name is not the sexiest, this is one of our best &ldquo;do the work so that the user doesn&rsquo;t have to&rdquo; features.
We&rsquo;re very proud of the transparency and competition that our multi-bank platform brings to our clients. Many of them did not previously have access to more than one bank or broker. However, no good deed goes unpunished - access to multiple counterparties comes with possible settlement headaches.
If you open a position via MillTech and subsequently close it, you would expect to only pay or receive a lower order Profit and Loss payment. But what if the open and close trades go to different banks? No-one wants to have to move substantial amounts of cash around on settlement date, for a net payment that is several orders of magnitude less.
With our automated counterparty assignment (ACA) logic, we remove this potential cash movement nightmare. Close trades are systematically split and allocated across banks with open positions, to ensure that cash movements are minimised. Clients don&rsquo;t need to do anything - just upload their trades as usual and away we go.
&nbsp;
<h2 id="assessingpositionimpactpretade">Assessing position impact pre-trade</h2>
Every file of trades that gets uploaded to our platform is rigorously checked by our validation &amp; compliance engine. This checks for inconsistent data or disallowed activity.
But one of the hardest things for us to validate is the trade amount. Other than limit ceilings, it&rsquo;s hard to assess the validity of the numbers without understanding the intent.
So instead we added position impact information to the trade review screen for clients. Users can see what their current position is, their uploaded trade amount, the new position that would be created if executed, and a text summary of the impact.
<img src="https://directus.corp.milltechfx.com/assets/8d3e5d97-53ab-4be4-979b-cbd3be82b556" alt="Assessing FX position impact pre-trade" width="650" height="202" />
It&rsquo;s much easier to scan down a column of words like &ldquo;New&rdquo;, &ldquo;Increase&rdquo; or &ldquo;Close out&rdquo; than it is to compare numbers across multiple screens!
&nbsp;
<h2 id="flexiblereports">Flexible reports</h2>
We offer a range of standardised reports for clients, which can be accessed in the portal or sent via email or SFTP.
However, sometimes clients need data exports in a particular structure (often to match an import format for an existing system). In the past this would have represented a bespoke build for us, which is tricky to manage alongside an already full product development roadmap.
So instead we&rsquo;ve built a flexible reporting module, that allows us to easily map any of our data to a client spec. And crucially, it&rsquo;s all driven by config - no need for writing, testing or deploying code each time we get a new client request.
&nbsp;
<h2 id="approvalsandselectinganexecutiontime">Approvals and selecting an execution time</h2>
For a long time we used a rather simple method for selecting benchmark execution times - a free text field to write in their preferred fix, which our Operations team would read and assign accordingly. Very easy to deliver; not so easy to scale!
Adding in proper benchmark selection is a non-trivial problem, however. What happens if a client submits a file only a few minutes before the benchmark? Or uploads a draft batch before the cut-off, but fails to approve and submit in time?
We wanted to preserve the flexibility that came with our original human-driven process, so we settled on two cut-offs: one for guaranteeing a benchmark (1 hour before) and another for submission entirely (20 minutes before).
<img src="https://directus.corp.milltechfx.com/assets/3910ce4b-fa9e-4df0-8c6a-1fcd5522dd17" alt="Selecting an FX execution time through our Multi-bank Marketplace" width="650" height="270" />
New email reminders for draft batches still awaiting approval completes a comprehensive upgrade of approval and submission of orders on our platform.
&nbsp;
<h2 id="fatfingerlimits">Fat finger limits</h2>
Sometimes the smallest features can have the largest impact on users. Fat finger limits are (optional) thresholds that prevent clients from accidentally executing trades above their typical ticket size.
Clients can opt for different limit sizes per portfolio and can also select certain super users to be able to approve above the limits, for exceptional trades.
As a SaaS finance platform, we always need to balance removing UX friction with not introducing risk. A little friction can go a long way to preventing typos from turning into trading errors.
&nbsp;
<h2 id="wherenext">Where next?</h2>
Look out for upcoming updates on our exciting round of next products and features - such as REST APIs &amp; FIX connectivity to allow for automated orders submission and post trade integrations. Along with new services to calculate services to automatically determine hedge trades.

Explore the new functionalities we have implemented to our FX Multi-bank Marketplace over the last year.

Michael Blog 

FXaaS just got smarter: 5 updates you should know

Having operated using the Belgian Franc since as far back as 1832, Belgium made the decision to <a href="https://economy-finance.ec.europa.eu/euro/eu-countries-and-euro/belgium-and-euro_en" target="_blank" rel="noopener">adopt the euro upon its launch in 2002</a>.
Belgium's contribution to the European Union cannot be understated, and it is often named &lsquo;the heart of Europe&rsquo; with good reason. Home to the European Parliament, European Council and European Commission, <a href="https://belgian-presidency.consilium.europa.eu/en/presidency/belgium/#:~:text=Official%20languages-,Belgium%3A%20the%20heart%20of%20Europe%20and%20a,member%20of%20the%20European%20Union&amp;text=Belgium%2C%20one%20of%20the%20founding,and%20evolution%20of%20European%20cooperation." target="_blank" rel="noopener">Belgium was a key player</a> in establishing the European Coal and Steel Community and the European Economic Community. These organisations went on to become the European Union we know today.
It therefore comes as no surprise that Belgium is heavily reliant on and invested in the value of the euro, and has experienced the currency&rsquo;s highs and lows, including the value height of <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">1.6 EUR</a>&nbsp;to 1 USD in 2008 and its gradual decline to <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">roughly 1.1 EUR to the</a> dollar today.
Despite its core role within the EU, Belgium maintains strong trade figures with the rest of the world, with <a href="https://european-union.europa.eu/principles-countries-history/eu-countries/belgium_en" target="_blank" rel="noopener">43.1% of imports and 32%</a> of exports derived from outside of the Union. This makes foreign exchange a key element of the Belgian economy. The country also comes <a href="https://european-union.europa.eu/principles-countries-history/eu-countries/belgium_en" target="_blank" rel="noopener">sixth in the EU in terms of GDP per capita</a>, and accounts for 3.4% of the Union&rsquo;s total GDP, making it a key business, trade and finance centre.
MillTech recently surveyed 250 senior finance decision-makers at fund managers across Europe to gain insight into how different countries operate FX resourcing, risk management and hedging strategies.
The report shows us that FX management is high on the priority list for fund managers in Belgium. This blog delves into the research&rsquo;s insights into Belgian fund managers&rsquo; FX risk management, including their FX exposure, pain points, hedging strategies and priorities.&nbsp;
<h3>In this blog:</h3>
<ul>
<li><a href="#importanceofFXtofundmanagersinbelgium">The importance of FX to fund managers in Belgium</a></li>
<li><a href="#relianceonmanualprocessesandappetiteforautomation">Reliance on manual processes and appetite for automation</a></li>
<li><a href="#belgiumfundmanagersstrugglewithalackoftransparency">Belgium fund managers struggle with a lack of FX transparency</a></li>
<li><a href="#hedgingtrendsinbelgium">Hedging trends in Belgium</a></li>
<li><a href="#belgiumsneedtodiversifyfxcounterparties">Belgium's need to diversify FX counterparties</a></li>
<li><a href="#esgprioritiesinbelgium">ESG priorities in Belgium</a></li>
<li><a href="#fxshouldbeapriority">FX should be a key priority for Belgium's fund managers in 2024</a></li>
</ul>
&nbsp;
<h2 id="importanceofFXtofundmanagersinbelgium">The importance of FX to fund managers in Belgium</h2>
The MillTech European Fund Manager CFO FX Report 2024 found that:
<ul>
<li>90% of fund managers in Belgium said that FX was significant to their business, higher than the European average of 88%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/a7e3e372-c3ba-4f9b-9ff7-b9f6c69d13b1" alt="Significance of FX to fund managers in Belgium " width="540" height="350">
<ul>
<li>Belgium also had the second highest percentage of fund managers that said FX was very significant to their business (32%).</li>
<li>The report also found that 74% of fund managers in Belgium said their returns had been affected by EUR volatility, lower than the European average of 89%.</li>
<li>Interestingly, 57% of Belgian fund managers&rsquo; business activity is exposed to foreign currency risk. This was the second highest of any European country surveyed, behind Luxembourg (60%), and higher than the average of 51%, demonstrating the importance of FX to fund managers in the country.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="relianceonmanualprocessesandappetiteforautomation">Reliance on manual processes and appetite for automation&nbsp;</h2>
<ul>
<li>Belgium still has work to do when it comes to embracing FX automation and its fund managers are still dependent on outdated manual processes that significantly reduce efficiency.</li>
<li>An average of 2.3 days a week are spent on FX-related activities by fund managers in Belgium, slightly below the European average of 2.61 days.</li>
<li>However, Belgium was found to have the highest number of team members tasked with FX-related activities (3.1), more than the European average of 2.8.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/02db568c-f888-4b1b-94b7-d5cfa88fcb18" alt="Team members tasked with FX related activities" width="540" height="350">
<ul>
<li>Belgium&rsquo;s fund managers were also found to have an above-average reliance on some manual processes, with 35% using phones to instruct financial transactions. Such manual processes are a burden on human capital for fund managers and significantly reduce the efficiency of foreign exchange activity.</li>
<li>However, the report did find the country to have the lowest usage of email - only 29% compared to an average of 43%.</li>
<li>This, on top of the fact that 84% of Belgian fund managers are exploring new technology to automate FX operations, shows that the industry is moving in the right direction towards increased efficiency.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="belgiumfundmanagersstrugglewithalackoftransparency">Belgian fund managers struggle with a lack of FX transparency</h2>
<ul>
<li>Nearly four-fifths (77%) of Belgian fund managers said there is a lack of transparency in the FX market.</li>
<li>This proportion was lower than the European average of 82%, but still showed transparency to be a highly significant issue.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="hedgingtrendsinbelgium">Hedging trends in Belgium</h2>
<ul>
<li>Although 74% of Belgian fund managers said their returns had been impacted by EUR volatility, the country had one of the lowest proportions of fund managers that hedge their forecastable currency risk (71%), below the European average of 77%.</li>
<li>That said, 89% of unhedged fund managers in Belgium are now considering hedging due to market volatility, broadly in line with the average of 88%.</li>
<li>Belgium also has the highest percentage of fund managers that hedge all or a large proportion of their FX exposure - 91%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/9e73aa3a-f771-4762-a5ad-aeaec145d3de" alt="FX hedging amongst Belgium fund managers" width="484" height="350">
<ul>
<li>This was high above the 76% average. In addition, the country had the second-highest hedge ratio and 68% said that their hedge ratio was higher than last year.</li>
<li>It&rsquo;s clear that rising costs are challenging fund managers across Europe, with 84% saying the cost of hedging had risen. This rose slightly to 86% in Belgium.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="belgiumsneedtodiversifyfxcounterparties">Belgium&rsquo;s need to diversify FX counterparties</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. Credit Suisse, a globally systemic bank,&nbsp;<a href="https://www.ft.com/content/18278291-772e-4caa-8910-1d7b8563ed42" target="_blank" rel="noopener">stood on the brink</a>&nbsp;for the first time since Lehman Brothers and, in the US, three regional and specialised banks failed in&nbsp;<a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/" target="_blank" rel="noopener">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of Spring 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
<ul>
<li>Our research found that 90% of European fund managers are looking to diversify their FX counterparties.</li>
<li>Only 84% of fund managers in Belgium, however, said they were exploring counterparty diversification, the joint-lowest proportion.</li>
</ul>
<a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="599" height="90"></a>
<h2>&nbsp;</h2>
<h2 id="esgprioritiesinbelgium">ESG priorities in Belgium</h2>
Driven by increased pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers. Our survey found that the trend has also begun to play an increasingly important role in selecting FX counterparties and service providers.&nbsp;
<ul>
<li>94% of senior finance decision-makers at European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.</li>
<li>Belgium, however, was found to have the second-lowest proportion of fund managers that said the ESG credentials of fund managers impact their selection &lsquo;to a great extent&rsquo; &ndash; 45%. This was significantly lower than the average of 56%.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="fxshouldbeapriority">FX should be a key priority for Belgium&rsquo;s fund managers</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for fund managers in Belgium in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
<a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction cost analysis (TCA)</a>&nbsp;&ndash; TCA was specifically created to highlight hidden costs and enable fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;
Comparing the market&nbsp;&ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;
Outsourcing&nbsp;&ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;
Strong governance&nbsp;&ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;
Diversification of liquidity providers&nbsp;&ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">exploring technology-driven alternatives</a> to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.&nbsp;
Automation&nbsp;&ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer<a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener"> end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.
&nbsp;
<h2>How MillTech can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Find out more at&nbsp;<a href="https://www.milltechfx.com/" target="_blank" rel="noopener">https://www.milltech.com</a>&nbsp;&nbsp;
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

57% of Belgium fund managers’ business activity is exposed to foreign currency risk, how do they approach hedging to combat market volatility?

Belgium Big

Belgian Fund Managers’ approach to managing FX volatility

Despite its small size, Luxembourg has developed into a European financial hub and, having listed the <a href="https://www.luxembourgforfinance.com/en/publication-article/the-green-capital-of-the-world/#:~:text=The%20world's%20first%20green%20bond,been%20adopted%20in%20markets%20worldwide." target="_blank" rel="noopener">world&rsquo;s first green bond</a>, has a particularly strong reputation surrounding green finance. The country&rsquo;s finance sector <a href="https://luxembourg.public.lu/en/invest/competitiveness/portrait-luxembourg-economy.html#:~:text=Main%20sectors%20of%20Luxembourg's%20economy,for%20many%20international%20financial%20institutions." target="_blank" rel="noopener">accounts for 25%</a> of its GDP, and it is also <a href="https://www.luxembourgforfinance.com/en/financial-centre/asset-management/" target="_blank" rel="noopener">Europe's largest investment fund centre</a> (the second largest in the world).
As a founding member of the European Union, Luxembourg is one of only 11 countries that first adopted the euro, in place of the Luxembourgian franc.
As such, the country has witnessed the entirety of the currency&rsquo;s history, including the value height of <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">1.6 EUR</a>&nbsp;to 1 USD in 2008 and its gradual decline to <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">roughly 1.1 EUR to the dollar</a>. Geopolitical and economic instability have brought increased levels of volatility for the euro in recent years, with the currency&rsquo;s value <a href="https://www.ft.com/content/1d7fede7-b559-46eb-b1b6-ee4a3cf8dd51" target="_blank" rel="noopener">dropping below the dollar</a> for the first time in 2022.
Being a small country in the heart of Western Europe, Luxembourg relies on the European Union for <a href="https://www.lloydsbanktrade.com/en/market-potential/luxembourg/trade-profile#:~:text=In%202022%2C%20its%20main%20customers,3.1%25%20%2D%20data%20Comtrade)." target="_blank" rel="noopener">roughly 90%</a> of its trade. This makes the country and its fund managers extremely dependent on the euro and vulnerable to its fluctuations.
MillTech recently surveyed 250 senior finance decision-makers at fund managers across Europe to gain insight into how different countries operate FX resourcing, risk management and hedging strategies.
The report shows us that FX management is a top priority for fund managers in Luxembourg. This blog delves into the research&rsquo;s insights into Luxembourgian fund managers&rsquo; FX risk management, including their FX exposure, pain points, hedging strategies and priorities.&nbsp;
<ul>
<li><a href="#FXhasstrongsignificanceforLuxembourg">FX has strong significance for Luxembourg fund managers</a></li>
<li><a href="#StrongappetiteforFXautomation">Strong appetite for FX automation hasn't translated into action</a></li>
<li><a href="#hedgingtrendsinluxembourg">Hedging trends in Luxembourg</a></li>
<li><a href="#LuxembourgsneedtodiversifyFXcounterparties">Luxembourgs need to diversify FX counterparties</a></li>
<li><a href="#LuxembourgprioritsesESG">Luxembourg prioritses ESG</a></li>
<li><a href="#FXshouldbeakeypriorityforLuxembourg">FX should be a key priority for Luxembourg's fund managers in 2024</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="FXhasstrongsignificanceforLuxembourg">FX has strong significance for Luxembourg's fund managers</h2>
<ul>
<li>Our research found that 93% of fund managers in Luxembourg said that FX was significant to their business, higher than the European average of 88%.</li>
<li>It also found that 93% of fund managers in Luxembourg said their returns had been affected by EUR volatility, higher than the average of 89%.</li>
<li>Interestingly, 60% of Luxembourg fund managers&rsquo; business activity is exposed to foreign currency risk. This was the highest of any European country surveyed, and nine percentage points higher than the average of 51%, demonstrating the importance of FX to fund managers in the country.</li>
<li>Despite its importance, 85% of fund managers in Luxembourg struggle with a lack of FX transparency. This proportion was higher than the European average, demonstrating that this could be a more pressing issue for them.</li>
</ul>
<a title="The MillTechFX European Fund Manager CFO FX Report 2024" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024/"><img src="https://directus.corp.milltechfx.com/assets/3835b15f-bf98-46d9-8744-0114b41361c3" alt="Download the MillTechFX European Fund Manager CFO FX Report 2024" width="600" height="77"></a>
<h2>&nbsp;</h2>
<h2 id="StrongappetiteforFXautomation">Strong appetite for FX automation hasn't translated into action</h2>
When it comes to using manual processes to instruct FX-related activity, Luxembourg still has work to do in moving towards more efficient automated processes.
<ul>
<li>An average of 2.5 days a week are spent on FX-related activities by fund managers in Luxembourg</li>
<li>9 people per team are tasked with FX activities, one of the highest figures in Europe, second only to Belgium at 3.1.</li>
</ul>
Luxembourg fund managers&rsquo; reliance on phones and email was also higher than the European average:
<ul>
<li>44% still instructing financial transactions over email</li>
<li>37% doing so over the phone.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/58205a0b-4344-4baa-b88e-4c57ab184368" alt="How do you currently conduct financial transactions" width="466" height="350">
Such manual processes are a burden on human capital for fund managers and significantly reduce the efficiency of foreign exchange activity.
<ul>
<li>The good news is that 93% of fund managers in Luxembourg are looking into new technology and platforms to automate their FX operations.</li>
<li>This was one of the highest figures in Europe and above the 87% average.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="hedgingtrendsinluxembourg">Hedging trends in Luxembourg</h2>
<ul>
<li>Although 93% of fund managers in Luxembourg said their returns had been impacted by EUR volatility, surprisingly the country had the lowest proportion of fund managers that hedge their forecastable currency risk (56%), far below the European average of 77%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/e4b164e6-ef7d-4c6c-ae9a-50323e2e7b42" alt="Do you hedge your forecastable currency risk?" width="468" height="350">
<ul>
<li>However, the report discovered that 87% hedge all or a large proportion of their FX exposure, the second highest in Europe. They also have a relatively high average hedge ratio of 63%, the highest in the group, while 60% said that this was higher than the previous year.</li>
<li>The majority of fund managers across Europe stated that their hedging costs had increased over the last year.</li>
<li>However, Luxembourg&rsquo;s fund managers felt it more than others, may have risen with 93% reporting them to be higher. This was the second highest in the group, behind the Netherlands (100%), and significantly above the 84% European average</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/4a5fe796-855a-4d8f-bb73-34435da7ffa4" alt="Has the cost of your hedging gone up over the past year?" width="425" height="350">
<h2>&nbsp;</h2>
<h2 id="LuxembourgsneedtodiversifyFXcounterparties">Luxembourg's need to diversify FX counterparties</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. Credit Suisse, a globally systemic bank, <a href="https://www.ft.com/content/18278291-772e-4caa-8910-1d7b8563ed42" target="_blank" rel="noopener">stood on the brink</a>&nbsp;for the first time since Lehman Brothers and, in the US, three regional and specialised banks failed in <a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/" target="_blank" rel="noopener">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of Spring 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
<ul>
<li>Our research found that 90% of European fund managers are looking to diversify their FX counterparties.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/3554e2fd-5c17-47e7-9dc2-8f5468127f6e" alt="Diversify FX counterparties" width="454" height="350">
<h2 id="LuxembourgprioritsesESG"></h2>
<ul>
<li>A healthy 85% of fund managers in Luxembourg said they were exploring counterparty diversification, but this was one of the lowest proportions in Europe.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="LuxembourgprioritsesESG">Luxembourg prioritses ESG</h2>
Driven by increased pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers.
<ul>
<li>Our survey found that 94% of European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.&nbsp;</li>
<li>Luxembourg had the highest percentage of fund managers that said ESG credentials impacted FX counterparty selection to a great extent (67%), which is unsurprising given its reputation as a green finance hub.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="FXshouldbeakeypriorityforLuxembourg">FX should be a key priority for Luxembourg&rsquo;s fund managers in 2024&nbsp;</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for fund managers in Luxembourg in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
<ol>
<li><a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction cost analysis (TCA)</a> &ndash; TCA was specifically created to highlight hidden costs and enable fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;</li>
<li>Comparing the market &ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;</li>
<li>Outsourcing<a href="https://milltechfx.com/product/outsourced-execution-services/" target="_blank" rel="noopener"> </a>&ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;</li>
<li>Strong governance &ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;</li>
<li><a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Diversification of liquidity providers</a> &ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin exploring technology-driven alternatives to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.</li>
<li>Automation&nbsp;&ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.&nbsp;</li>
</ol>
<h3>&nbsp;</h3>
<h2>How MillTech can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Download the full report <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

93% of fund managers in Luxembourg stated FX was significant to their business, higher than the European average. How do their levels of hedging compare?

V3  

Luxembourg Fund Managers put FX risk in focus

In our latest blog, we take a deep dive into what our research uncovered about fund managers in Switzerland including their FX exposure, pain points, hedging strategies and priorities.&nbsp;
<ul>
<li><a href="#Switzerlandrelationshipwiththeeuro">Switzerland's relationship with the euro</a></li>
<li><a href="#fximportanceforswiss">FX importance for Swiss fund managers</a></li>
<li><a href="#GreaterautomationinterestamongstSwiss">Greater automation interest amongst Swiss fund managers</a></li>
<li><a href="#swissfundmanagersstugglewithtransparency"> Swiss fund managers struggle with transparency</a></li>
<li><a href="#swisshedgingtrends">Swiss hedging trends</a></li>
<li><a href="#counterpartyriskinswitzerland">Counterparty risk in Switzerland</a></li>
<li><a href="#ESG">ESG is a priority for Swiss fund managers</a></li>
<li><a href="FXshouldbeakeypriorityforswiss">FX should be a key priority for Swiss fund managers in 2024</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="Switzerlandrelationshipwiththeeuro">Switzerland's relationship with&nbsp;the euro</h2>
Following a referendum in 1992, the Swiss public decided against joining the European Economic Area (EEA), opting to keep using the Swiss franc as opposed to the euro.
However, in September 2011 the Swiss National Bank (SNB) pegged the Swiss franc to the euro at a rate of 1.20 francs to 1 euro. Less than four years later, in January 2015, the SNB announced it was going to scrap its currency peg to the euro, causing the Swiss franc to immediately skyrocket by 20%.
In the years that have followed this shock decision, the Swiss franc weakened back to <a href="https://www.bloomberg.com/news/articles/2018-04-19/swiss-franc-weakens-below-key-level-once-protected-by-snb?sref=ix7Z3iHU" target="_blank" rel="noopener">1.20 euro</a> in 2018 completing a full reversal, before gradually strengthening to an eight-year high of <a href="https://www.bloomberg.com/news/articles/2023-12-07/swiss-franc-strongest-against-euro-since-swiss-national-bank-cap-scrap-in-2015?sref=ix7Z3iHU" target="_blank" rel="noopener">0.94 euro</a> in December 2023, amidst bets that the European Central Bank would cut rates before the SNB.
It&rsquo;s clear that currency management in Switzerland has always been an important consideration.
&nbsp;
<h2 id="fximportanceforswiss">FX importance for Swiss fund managers</h2>
Fund managers in Switzerland consider FX to be of greater importance than the rest of Europe:
<ul>
<li class="s5">&nbsp;97% stated FX was significant to their business compared to the European average of 88%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/234e35c0-9f5e-450e-a404-d28571b8b14c" alt="How significant, if at all, is foreign exchange (FX) to your business?" width="614" height="350">
<ul>
<li class="s5">Our research also found that the vast majority of fund managers in Switzerland (94%) had their returns affected by euro volatility, which was higher than the European average of 89%.</li>
<li class="s5">Further to this, 50-59% of Swiss fund managers&rsquo; business is exposed to foreign currencies, highlighting the significance of FX to their business.&nbsp;</li>
</ul>
&nbsp;
<h2 id="GreaterautomationinterestamongstSwiss">Greater automation interest amongst Swiss fund managers</h2>
Our research revealed there is still a heavy reliance on manual FX execution in Switzerland:
<ul>
<li class="s5">50% of fund managers relying on email to instruct financial transactions</li>
<li class="s5">38% reporting it is the most challenging aspect of their FX operations.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/09f4c485-59c4-4385-8069-f1786519b7e7" alt="How do you currently instruct financial transactions?" width="534" height="350">
This process is a huge drain on human capital, with our research finding that on average, fund managers in Switzerland have nearly three team members tasked with FX activities and spend almost three days per week on FX-related matters.
<ul>
<li class="s5">Fortunately, the overwhelming majority of Swiss fund managers (91%) are looking into new technology and platforms to automate their FX operations.</li>
<li class="s5">This puts them ahead of the rest of European fund managers, 87% of which are exploring automation.</li>
</ul>
&nbsp;
<h2 id="swissfundmanagersstugglewithtransparency">Swiss fund managers struggle with transparency</h2>
We asked fund managers if they thought there was a lack of transparency in the FX market:
<ul>
<li class="s5">The answer was a resounding yes, with over four-fifths of respondents saying so. &nbsp;</li>
<li class="s5">Switzerland certainly didn&rsquo;t buck this trend, with 94% of Swiss fund managers stating they thought there was a lack of transparency in the FX market. </li>
</ul>
This was backed up by the fact that after manual processes, our research found that the two biggest challenges for Swiss fund managers&rsquo; FX operations are:
<ul>
<li class="s5">Getting comparative quotes (31%)</li>
<li class="s5">Forecasting and cost calculation (28%).</li>
</ul>
<a title="Download the MillTechFX European Fund Manager CFO FX Report 2024" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/3835b15f-bf98-46d9-8744-0114b41361c3" alt="The MillTechFX European Fund Manager CFO FX Report 2024" width="600" height="90"></a>
&nbsp;
<h2 id="swisshedgingtrends">Swiss hedging trends</h2>
<ul>
<li class="s5">With a high proportion of respondents in Switzerland (94%) saying that their returns had been impacted by EUR volatility, the same share also hedge their forecastable currency risk (94%).</li>
<li class="s5">Of the Swiss fund managers that don&rsquo;t, 100% responded saying that they are now considering hedging given market volatility.</li>
<li class="s5">17% of fund managers in Switzerland reported that they hedge all of their FX exposure, with 67% stating that they hedge a large proportion.</li>
<li>This is in line with the rest of Europe, which reported 17% and 60% respectively.</li>
<li>Swiss fund managers reported one of the highest current hedge ratios with 50-59% and 70% stated their hedge ratio is higher than the previous year.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/179772ea-cbb1-4b77-9433-31f6bc04a5ee" alt="Do you hedge your forecastable currency risk?" width="412" height="350">
<ul>
<li class="s5">Interestingly, this is higher than any other European country, with 61% of European fund managers reporting their hedge ratio increased this year compared to the previous.</li>
<li class="s5">Hedging costs for fund managers across Europe rose in the past 12 months and this is the same case in Switzerland. Overall, 84% of European fund managers said their hedging costs had risen, rising to 90% in Switzerland.</li>
</ul>
&nbsp;
<h2 id="counterpartyriskinswitzerland">Counterparty risk in Switzerland</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. In Switzerland, a globally systemic bank stood on the brink, for the first time since Lehman Brothers and in the US, three regional and specialised banks failed in <a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/" target="_blank" rel="noopener">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of Spring 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
<ul>
<li class="s5">Our research found that 90% of fund managers are looking to diversify their FX counterparties.</li>
<li class="s5">Perhaps unsurprisingly given it was the home of Credit Suisse, Switzerland had one of the highest percentages of fund managers exploring diversification at 94%.</li>
</ul>
&nbsp;
<h2 id="ESG">ESG is a priority for Swiss fund managers</h2>
Driven by increased pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers. Our survey found that the trend has also begun to play an increasingly important role in selecting FX counterparties and service providers.&nbsp;
<ul>
<li class="s5">94% of senior finance decision-makers at European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.&nbsp;&nbsp;</li>
<li class="s5">Switzerland matches this general trend, with 94% of fund managers responding that ESG credentials impact their selection of FX counterparties and 63% saying it impacts their decision to a great extent.</li>
</ul>
&nbsp;
<h2>FX should be a key priority for Swiss fund managers in 2024&nbsp;</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for Swiss fund managers in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
<ul>
<li><a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">Transaction cost analysis (TCA)</a> &ndash; TCA was specifically created to highlight hidden costs and enables fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;</li>
<li>Comparing the market &ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;</li>
<li>Outsourcing &ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;</li>
<li>Strong governance &ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;</li>
<li><a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Diversification of liquidity providers</a> &ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin exploring technology-driven alternatives to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.&nbsp;</li>
<li>Automation &ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.</li>
</ul>
&nbsp;
<h2 class="s5">How MillTech&nbsp;can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Download the full report <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Our latest research found that the vast majority of Swiss fund managers (94%) had their returns affected by euro volatility.

Swiss Blog 1

FX trends & challenges facing Swiss fund managers

MillTech recently <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024/" target="_blank" rel="noopener">surveyed 250 fund managers</a> and senior finance decision makers across Europe to provide a window into their FX resourcing, risk management and hedging strategies and views on trends such as automation and ESG and it revealed some fascinating trends and geographic differences.&nbsp;&nbsp;
In this blog, we take a deep dive into what our research uncovered about fund managers in the Nordic countries of Denmark and Sweden, including their FX exposure, pain points, hedging strategies and priorities.
&nbsp;
<h2 class="s5">Recent currency history in Denmark and Sweden&nbsp;</h2>
&nbsp;In the early 2000's, both Denmark and Sweden refused to adopt the euro after national referendums, choosing to maintain free-floating currencies. &nbsp;
Denmark, participating in the Exchange Rate Mechanism II (<a href="https://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism" target="_blank" rel="noopener">ERM II</a>), is required to trade within 2.25% either side of a specified rate of 1 euro equal to 7.46038 krone. <a href="https://www.eurofound.europa.eu/en/resources/article/2000/denmark-votes-no-euro" target="_blank" rel="noopener">Polls show</a> that the majority of the&nbsp;Danish population opposes joining the Eurozone, given the zone&rsquo;s debt crisis.&nbsp;&nbsp;
In Sweden, however, opposition to the eurozone has <a href="https://research.sebgroup.com/macro-ficc/reports/42009" target="_blank" rel="noopener">gradually diminished</a> given the weakening of the Swedish krona, which is roughly 20% undervalued against the euro as of the <a href="https://sebgroup.com/our-offering/reports-and-publications/nordic-outlook-highlights/theme-the-krona-and-flows" target="_blank" rel="noopener">summer of 2023</a>. This has led to the rise in costs of imported goods from the Eurozone which, if the imports are intermediate goods, can have unintended consequences on future exports.
&nbsp;
<h2 class="s5">Importance of FX to the Nordics&nbsp;</h2>
When asked how significant foreign exchange was to their businesses, fund managers in Denmark and Sweden responded saying that FX was of less importance than the rest of the European pack (88%), coming in at 67% and 63% respectively.&nbsp;&nbsp;
The slight majority is even more surprising when it comes to the impact EUR volatility had on Danish and Swedish fund managers&rsquo; returns. In Denmark, 83% of fund managers said FX had an impact on their returns, while in Sweden this rose to 90%.&nbsp;&nbsp;
Further, 34.84% of Swedish fund managers and 47.96% of Danish fund managers&rsquo; business on average is exposed to foreign currencies, highlighting the significance of FX to their business.
&nbsp;
<h2 class="s5">Reliance on manual processes driving automation exploration&nbsp;&nbsp;</h2>
Our research revealed there is still a reliance on manual FX execution, especially in Denmark where 40% of fund managers rely on phone calls to instruct financial transactions, while 43.33% rely on email. In Sweden, it&rsquo;s still a problem with 30% relying on phone calls and 30% on email.&nbsp;
This process is a huge drain on human capital, with our research finding that on average, fund managers in Denmark and Sweden have nearly three team members tasked with FX activities and spend nearly three days per week on FX-related matters.&nbsp;&nbsp;&nbsp;
The good news is that the vast majority of fund managers in Denmark (83%) and Sweden (70%) are looking into automating their FX operations. However, they are still lagging behind the rest of European fund managers, 87% of which are exploring automation.
&nbsp;
<h2 class="s5">Nordic fund managers are struggling with transparency</h2>
We asked EU fund managers if they thought there was a lack of transparency in the FX market and the answer was a resounding yes, with over four-fifths of respondents saying so.&nbsp;&nbsp;
In the Nordics, it was a bit more mixed with a definitive 97% of Danish fund managers struggling with FX transparency, compared to a below-average 73% in Sweden. That said, they both represent healthy majorities in both countries, potentially implying that hidden costs and an inability to compare the market are hampering Nordic fund managers when it comes to FX.&nbsp;
Another critical pain point for both Swedish and Danish fund managers was managing multiple providers, with both reporting this as the most challenging aspect of their FX operations. Getting comparative quotes was the next most difficult task for fund managers, with 37% in Sweden and 30% in Denmark selecting this as a key issue.
&nbsp;
<h2 class="s5">Hedging against volatility&nbsp;</h2>
Despite a high proportion of respondents in Sweden (90%) saying that their returns had been impacted by EUR volatility, only 63% hedge their FX risk, compared to 93% in Denmark. 100% of fund managers that don&rsquo;t hedge their FX risk in Denmark and Sweden are now considering doing so given market volatility.&nbsp;
Sweden had the highest percentage of fund managers hedging all of their FX exposure (47%), while Denmark was above average at 18%. In addition, both Sweden and Denmark had the lowest proportion of fund managers who said that their hedge ratios were higher (net) than the previous year: 47% and 54% respectively.&nbsp;&nbsp;
Interestingly, the two countries had the lowest proportion of fund managers increasing their hedge ratios: 23% in Sweden and 40% in Denmark. This is compared with an average across the surveyed European countries of 50%.&nbsp;&nbsp;
Hedging costs for fund managers across Europe rose in the past 12 months and this is the same case in Denmark and Sweden albeit less ubiquitously. Overall, 84% of European fund managers said their hedging costs had risen, compared to 63% and 68% in Sweden and Denmark respectively, the two lowest of the countries surveyed.
&nbsp;
<h2 class="s5">Counterparty diversity in the Nordics&nbsp;</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. In Switzerland, a globally systemic bank stood on the brink, for the first time since Lehman Brothers and in the US, three regional and specialised banks failed in <a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of the Spring of 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
Our research found that 90% of fund managers are looking to diversify their FX counterparties. Sweden had the highest percentage of fund managers exploring diversification (97%), while Denmark came in below average at 83%.&nbsp;
&nbsp;
<h2 class="s5">ESG is a priority&nbsp;</h2>
Driven by pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers. Our survey found that the trend has also begun to play an increasingly important role in selecting FX counterparties and service providers.&nbsp;&nbsp;
94% of senior finance decision-makers at European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.&nbsp;&nbsp;
In Sweden, 93% of fund managers said that ESG credentials have an impact, higher than Denmark (90%), while 60% said they have a big impact, over two times more than in Denmark (23%).
&nbsp;
<h2 class="s5">FX should be a key priority for Nordic fund managers</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for fund managers in the Nordics in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
Transaction cost analysis (TCA) &ndash; <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">TCA </a>was specifically created to highlight hidden costs and enables fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;
Comparing the market &ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;
Outsourcing &ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;
Strong governance &ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;
Diversification of liquidity providers &ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin exploring technology-driven alternatives to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.&nbsp;
Automation &ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.
&nbsp;
<h2 class="s5">How MillTech&nbsp;can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and FX risk hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Find out more at <a href="https://www.milltechfx.com/">https://www.milltech.com</a>&nbsp;&nbsp;
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

What moves the FX dial in Sweden & Denmark? Uncovered the pain points, hedging strategies and priorities of the Nordic Fund Managers

Nordic Image

The intensifying FX challenges for Nordic fund managers

For most pension funds, FX may not be a conscious investment choice. Many invest internationally to gain exposure to the diversification benefits inherent in other assets, meaning the currency exposure they get from investing in foreign markets is usually an unintended by-product of buying the asset.
In addition, pension funds that allocate to international external investment managers for both private and public market strategies can be subjected to capital calls in a foreign currency.
For example, a US pension fund might invest in a European private equity fund that can issue capital calls in EUR at various times over the deployment period of the fund. The pension fund must therefore convert USD into EUR in order to physically satisfy the capital call. Ensuring best execution for this kind of transaction is just as important as for a hedging transaction.&nbsp;
When managing this currency risk, it is therefore important for pension funds to get the best possible conversion rate, or face potentially overpaying for their FX execution. Despite this, many pension funds may have traditionally paid too much for their FX transactions, whether in spot, forward or other products.
&nbsp;
<h2>An environment lacking transparency</h2>
One of the key reasons for this struggle is likely because of the nature of pension funds&rsquo; custodial relations. The single-party custodial format means that pension funds can feel as though they have little choice but to accept the FX rates offered to them by their custodian, often leaving them unsure whether they&rsquo;re getting the best possible rate.
Pension funds, unwittingly, may therefore be significantly overpaying for their FX execution.
There is little recent research into pension funds overpaying, but reports that exist point in one direction. One <a href="https://www.pensionfundsonline.co.uk/content/pension-funds-insider/investment/fx-fee-worries-spread-to-the-uk/194" target="_blank" rel="noopener">study</a> from 2010, for example, claimed pension funds may be paying more than 24 basis points above market rates per trade. Similarly, a paper published in the <a href="https://www.ft.com/content/46ce0dc2-e9e5-11e0-a149-00144feab49a" target="_blank" rel="noopener">Financial Times</a> argued that FX revenues for custodians are significantly greater than those of other banks and that the execution process lacks integrity or transparency.&nbsp;
Despite efforts to increase transparency over the past decade, a pension fund&rsquo;s ability to get the best possible rate is ultimately left down to the custodian. This means that it will, to a degree, always be left in the dark over whether it is accessing the best price.
&nbsp;
<h2>Looking beyond the single-party custodial format</h2>
Fortunately, there is now an alternative to the status quo that enables best execution whilst reducing the operational burden traditionally associated with trying to achieve it. Technology has enabled new entrants to offer an alternative way to transact in FX that seeks to address the inequalities and opacity pension funds may currently experience.
The first step is for pension funds to access a greater pool of pricing:
<ol>
<li><a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Multibank marketplaces</a> offer pension funds access to multiple liquidity providers from a single interface. Rather than being offered one single rate like their existing set up, this enables them to see live rates of institutional grade quality on a single screen and to automatically execute at the best available rate. Having the ability to reach multiple counterparties is essential from a best execution perspective and can help ensure pension funds aren&rsquo;t being overcharged. FX-as-a-Service delivers these multi-bank marketplace benefits whilst also streamlining onboarding and integration for pension funds.</li>
<li>The next step is to get more transparency on pricing. The use of <a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">independent transaction cost analysis (TCA)</a> exposes any hidden costs in the spread and enables pension funds to see exactly how much they are being charged for their execution.</li>
<li>The final step is to provide all of these benefits from a single location which offers streamlined workflow, real-time reporting and TCA to demonstrate best execution. This has the potential to drastically reduce execution costs and operational burden.</li>
</ol>
&nbsp;
<h2>How MillTech can help</h2>
MillTech provides access to a <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks tier-one, while harnessing a unique and significant pricing efficiency for our clients. Rather than having little choice but to accept the rates offered to them by their custodians, pension funds can automatically execute at the best available rate with the simple click of a button.
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for pension funds.
<a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

For most pension funds, FX may not be a conscious investment choice. Many invest internationally to gain exposure to the diversification...

Image 

How pension funds can get a better FX deal

In our newest blog post, we are highlighting some of the costs associated with FX execution and hedging that fund managers should be aware of and rank them in order of transparency.
<h2>&nbsp;FX Execution Costs</h2>
Execution costs are often the first thing fund managers will reference when speaking about FX costs. Think of a bank as a currency wholesaler, who will then discount away from their wholesale rate to incorporate a profit margin or &lsquo;spread&rsquo; when they quote their clients.
The spread will be impacted by various factors including, but not limited to:
<ul>
<li>how much a fund manager trades per annum</li>
<li>the size of a particular transaction</li>
<li>the liquidity of the currency pair</li>
<li>the tenor of a hedge</li>
<li>any other revenue generating products within the broader, holistic relationship with that fund manager</li>
</ul>
In theory, this cost should be easier to monitor and manage than all the other costs in this list. However, in practice, and even to this day, many fund managers cannot say explicitly what they are being charged.
One of the best ways for a fund manager to understand their current execution costs is by carrying out regular Transaction Cost Analysis (TCA) via an independent specialist. TCA is to FX execution what an audit is to annual accounts &ndash; third party analysis ensures that your FX counterparties are not &lsquo;marking their own homework&rsquo;.
<h2>Forward points</h2>
Forward points arise in certain FX risk management products such as forward contracts or FX swaps and are a universal market cost that is largely influenced by the interest rate differential between two currency jurisdictions.
Forward points can be negative or positive, and may be to the hedgers&rsquo; favour or detriment, depending on which currencies are being bought or sold.
Nothing can be done to avoid forward points, but fund managers should understand that the forward curve isn&rsquo;t always linear.
The tenor of a hedge can be altered to take advantage of a non-linear forward curve in certain circumstances such as when the trade expiry date doesn&rsquo;t need to match a pre-defined exit date.
Any spread that is incorporated into a forward rate, or the far-leg of a swap, can be monitored using TCA, in much the same way as other Over The Counter (OTC) FX products.
<h2>&nbsp;The Cost of Cash Drag</h2>
If you&rsquo;re a fund manager who hedges FX risk using products such as swaps, forwards or non-deliverable forwards, then you may have experienced first-hand a hidden cost of hedging that isn&rsquo;t often spoken about &ndash; the cash drag associated with placing margin.
When placing a hedge, a bank may request cash collateral (initial margin) to be held as security until the hedge matures and is settled.
Further, movements in the FX market may result in more collateral (variation margin) being requested, to cover the new mark-to-market of the hedge.
If a funds&rsquo; investible capital is held back for initial margin, variation margin, or contingent liquidity to cover potential variation margin requests at short notice, then deployed capital must work even harder to hit the target internal rate of return (IRR).
It&rsquo;s almost impossible to know, with any degree of certainty, where FX markets will move and to forecast total margin requirements throughout the life of a hedge &ndash; this means, that on day 1, it&rsquo;s impossible to forecast how placing margin will impact a funds&rsquo; investment returns.
For this reason, fund managers tend to seek out uncollateralized hedging facilities with each of their FX counterparties with a view to freeing up investible capital.
However, hedging on an uncollateralized basis might introduce additional costs that are built into the exchange rate in the form of a credit valuation adjustment (CVA).
<h2>Credit Valuation Adjustment (CVA)</h2>
If a fund manager successfully negotiates uncollateralised hedging facilities with their counterparty banks, they should be mindful of the potential for additional FX charges when hedging.
Uncollateralised hedging means that the executing bank is taking additional risk on a client when they hedge.
After all, that bank has no security against that hedge and in the event of a client default the bank could potentially face a mark-to-market (MTM) loss. CVA is an adjustment in the FX rate to account for the possibility of default. CVA is not zero when FX hedges are collateralized, but it is heavily negated when compared to uncollateralised hedging.
CVA will vary from bank to bank, for different clients and might be influenced by prevailing market conditions. This means when a fund manager is executing a longer-dated trade that induces CVA, they can&rsquo;t know exactly what their hedging costs will be in advance.
Although, generally speaking, as the tenor of a hedge increases, so does the potential mark-to-market loss and, therefore, the CVA charge.
In order to maintain FX transparency and cost control, fund managers could explore using shorter trade tenors (e.g. 6-months or less) that don&rsquo;t incur CVA.
<h2>Historic Rate Rollovers (HRR)</h2>
HRRs have been around for a while but get a mixed reception from different global regulators and are not generally considered best practice.
The appeal of HRRs for fund managers comes from the fact that in theory there will be no cash movements that might normally arise from rolling FX forwards.
Standard practice is for any mark-to-market (MTM) gain or loss to be crystallised at each roll date and for the fund manager to receive or instruct a cashflow accordingly.
Instead, with HRRs, the single FX counterparty that holds the current hedge incorporates any potential MTM loss into the new hedge rate and the hedge &lsquo;roll&rsquo; is performed &lsquo;off-market&rsquo;. It&rsquo;s the FX equivalent of kicking the can down the road.
HRRs should be considered more of a lending product than an FX product, because any accrued MTM losses are subject to a lending rate being applied to them before the new, off-market hedge rate is decided.
HRRs are not considered best practice for the following reasons::
<ul>
<li>The fund manager foregoes transparency of execution costs and cost oversight through TCA, because the new rate is agreed off-market.</li>
<li>All subsequent rolls must stay with the original counterparty that traded the hedge, meaning the fund manager may also forego best achieving the best price from the available counterparties.</li>
<li>Crucially, banks will trade HRRs at their own discretion and they can be withdrawn at any time potentially leaving a fund manager open to a large liquidity risk at short notice.</li>
</ul>
Fund managers should pay particular attention to the discretionary nature of continued access to HRRs every time a hedge is rolled forward, because it relies entirely on the credit appetite of the FX counterparty.
HRRs are at their most valuable to a fund manager when they carry a significant MTM loss in the hedge rate, which is conversely when the FX counterparty&rsquo;s credit appetite will come under most pressure.
For example, a &lsquo;Black Swan&rsquo; event that has led to significant volatility in FX markets (and a large MTM loss on a hedge) might also be the time an FX counterparty reassesses how much FX credit they extend to their book of clients as risk appetite decreases and they adopt a more conservative stance to weather the storm.
<h2>Operational Overheads</h2>
In our view, the FX cost centre that is the least transparent and most challenging to quantify is the &lsquo;opportunity cost&rsquo; of the time and operations associated implementing and managing the FX function day-to-day. Here are just some of the potential operational costs:
<ul>
<li>Onboarding a new FX counterparty &ndash; KYC, AML, ISDA and CSA negotiation, reverse due diligence, all put significant strain on legal and compliance resources.</li>
<li>FX transactions&ndash; cumbersome price discovery, navigating multiple systems or platforms, trade approvals, data entry and payments / settlements all could potentially take their toll on finance and operations teams.</li>
<li>Manual processes and human error &ndash; if FX transactions are managed manually then this can place more strain on finance teams and often makes the process more prone to errors. Errors can be extremely costly, especially if they involve cancelling and rebooking trades, or if a deadline is missed.</li>
<li>IT systems and integration &ndash; to help overcome the operational drag that arises from manual processes, a fund manager might decide to invest in various IT systems. However, to truly &lsquo;future proof&rsquo; the FX function, systems need to be integrated to help ensure that workflows are automated.</li>
<li>Counterparty monitoring &ndash; Following the collapse of Credit Suisse, SVB and First Republic Bank - something that captures the FX zeitgeist of 2023, is counterparty diversity and due diligence. Some resource must go towards monitoring counterparties, otherwise a fund manager risks going back to step 1).</li>
</ul>
To overcome these operational hurdles, fund managers could explore new solutions in the market which provide access to a multibank FX execution framework, while minimising operational burdens through automation.
<h2>How MillTech can help</h2>
MillTech by Millennium Global is the FinTech affiliate of Millennium Global Investments, one of the largest specialist currency managers globally. Our FX-as-a-Service model helps fund managers significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="get in touch today" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch today</a> to find out more.
URN MT100217

We highlight some of the costs associated with FX execution and hedging that fund managers should be aware of and rank them in order of transparency.

Joe Website Thumbnail

6 hidden FX costs every fund manager should know about

Although volatility has decreased since peaking towards the end of <a title="Four key FX trends facing fund managers in Canada - blog" href="https://thefullfx.com/fx-volatility-remains-high-after-event-driven-2022-bofa/#:~:text=Bank%20of%20America's%20latest%20FX,significantly%20higher%20over%20the%20year." target="_blank" rel="noopener">2022</a>, it is still a persistent threat to fund managers in Canada due to a combination of <a title="Four key FX trends facing fund managers in Canada - blog" href="https://think.ing.com/articles/boc-surprise-with-hikes-and-hints-at-more-to-come" target="_blank" rel="noopener">rising interest rates</a>, <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.ft.com/content/088d3368-bb8b-4ff3-9df7-a7680d4d81b2" target="_blank" rel="noopener">high global inflation</a> and <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.imf.org/en/Blogs/Articles/2023/04/05/geopolitics-and-fragmentation-emerge-as-serious-financial-stability-threats" target="_blank" rel="noopener">geopolitical uncertainty</a>.
After making consistent gains against the greenback <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.bloomberg.com/news/articles/2023-05-05/canadian-dollar-having-its-best-day-this-year-on-job-growth-oil?sref=ix7Z3iHU" target="_blank" rel="noopener">earlier this year</a>, the Canadian dollar hit a six-month low in October 2023 only to then <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/currencies/canadian-dollar-tracks-wall-street-higher-ahead-cpi-data-2023-10-16/" target="_blank" rel="noopener">rebound slightly</a> later in the month.
The US dollar itself has also fluctuated over the past year. Having reached a <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/europe/dollar-ascendant-investors-gear-up-fed-2022-09-21/" target="_blank" rel="noopener">two-decade high</a> against other major currencies in September 2022, it slid to a <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/currencies/dollar-pauses-ahead-fed-rate-decision-2023-02-01/" target="_blank" rel="noopener">nine-month low in February 2023</a> and continued to dip until it rebounded again in <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/currencies/dollar-hovers-above-3-month-low-euro-ecb-decision-looms-2023-09-14/" target="_blank" rel="noopener">September 2023</a>.
This backdrop, in addition to the broader macro environment, could create uncertainty on returns for fund managers in Canada with exposure to foreign currencies. As a result, many are now reviewing their foreign exchange (FX) set up so that they can readily navigate this uncertain climate.
Here are four key FX trends that are likely to affect how Canadian fund managers manage their currency exposures over the next 12 months.
<h2>1. Changing face of FX hedging</h2>
&nbsp;Our own <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">CFO FX report</a> found that 84% of fund managers in Canada have been impacted by US dollar volatility, whilst 98% said that FX was significant to their business.
Fund managers are subsequently renewing their focus on hedging, with <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">82%</a> having a formal hedging program in place. Out of those that do not, half are considering implementing one.
Firms are adapting their hedging strategies to protect themselves against mounting uncertainty in the market. The average hedge ratio amongst Canadian fund managers was between <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">50-59%</a>, with over <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">eight out of ten</a> citing this as higher compared to last year. This suggests that fund managers in Canada are moving to hedge more of their FX risk to protect their bottom lines from currency movements.
Likewise, rather than using long-dated FX forwards of up to a year or two, fund managers are opting for shorter hedge windows of six months or less, with the average hedge length at <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">five months</a>. This can help add an extra layer of flexibility and nimbleness, enabling them to adapt quickly should the market move against them.
Looking ahead, 51% of fund managers in Canada plan on shortening their hedge windows, whilst 53% plan on increasing their hedge ratio.
 
<h2>2. Counterparty diversification</h2>
&nbsp;One of the biggest lessons for fund managers from the banking crisis earlier this year is the importance of having access to multiple counterparties.
For fund managers who trade FX for payment or hedging purposes, FX can be seen as second-order: they transact in FX not because they &lsquo;want to&rsquo;, but because they &lsquo;have to&rsquo; due to international exposure. It is thus often operationally inefficient for them to set up and manage multi-bank relationships.
This means they are often reliant on one or two counterparties, and it can often take months to onboard others, which leaves them open to risk should another bank run occur. The loss of a major FX counterparty could render firms unable to trade, potentially impacting their ability to manage FX risk across their portfolios and share classes.
Our <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">survey</a> found that 82% of fund managers in Canada are looking to diversify their FX counterparties following the banking crisis earlier this year.
As well as enhancing risk management, having multiple counterparties can also have a positive impact on pricing. At any given time, fund managers may not be able to trade at the best available rate as they have no other access point to the market. Getting competitive quotes from multiple counterparties can enable fund managers to compare the market so they can ensure they get the best rate and achieve best execution.&nbsp;
 
<h2>3. Automation drive</h2>
&nbsp;For many fund managers in Canada, FX processes can be manual, cumbersome and time-consuming.
FX price discovery can often involve multiple phone calls, emails, or online platforms to log in to just to get comparative quotes from your counterparties. Because the market is constantly moving, price discovery often requires a team of people calling, emailing and logging in simultaneously before they can collectively decide who offered the best quote.
As a result, many are beginning to consider moving away from legacy infrastructure and instead embrace automated, tech-enabled solutions which digitise the FX process from initial price discovery right through to reporting at the end of the trade lifecycle.
Our <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">research</a> found that more than nine out of ten fund managers in Canada are looking into new technology and platforms to automate their FX operations.
The benefits of automated digital infrastructure include centralized price discovery, end-to-end workflow, enhanced transparency and faster onboarding.
<h2>4. Rising importance of ESG</h2>
&nbsp;Environmental, Social and Governance (ESG) criteria have begun to play an increasingly important role in the FX industry. <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">89%</a> of fund managers in Canada report that ESG has grown in importance to their business over the past year, whilst more than half <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">(53%)</a> believe that their FX counterparties must have strong ESG credentials.
When transacting in FX, fund managers can take the following steps to enhance their ESG credentials:
Adopting the Global FX Code (GFXC) - The BIS Foreign Exchange Working Group published this in 2017 to set out best practices across the wholesale FX market and is beginning to embed the code into firms&rsquo; ESG practices. Its members recently supported the possibility of a partnership with rating agencies so that anyone who signs the code can be recognised as having fulfilled the governance element of their ESG commitments. Signing up to the code is therefore a key step for fund managers seeking to demonstrate their ESG credentials.
Consider ESG credentials of partners - It&rsquo;s not just a company&rsquo;s own infrastructure that reflects strong ESG credentials but also that of any partner or affiliate organisation. When transacting in FX, we feel fund managers should seek to use FX providers which adhere to internationally recognised ESG standards, such as the Principles for Responsible Investment (PRI).
<h2>How MillTech can help</h2>
Looking ahead, we believe that FX risk management should be considered a top priority for fund managers in Canada and beyond.
MillTech by Millennium Global is the FinTech affiliate of <a title="Four key FX trends facing fund managers in Canada - blog" href="https://investments.millenniumglobal.com/" target="_blank" rel="noopener">Millennium Global Investments</a>, one of the largest specialist currency managers globally. Our FX-as-a-Service model provides an end-to-end solution, from onboarding with up to 15 counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
Having recently become members of the <a title="Four key FX trends facing fund managers in Canada - blog" href="https://caasa.ca/" target="_blank" rel="noopener">Canadian Association of Alternative Strategies and Assets</a>, we collaborate closely with fund managers in Canada to help them reduce their FX costs and the operational burden associated with FX execution and rolling hedge requirements.
To find out more about how we can help you navigate your FX challenges in 2023, get in touch with us&nbsp;<a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Canadian fund managers are dealing with ongoing volatility due to various factors; we explore what these are and how to manage them effectively.

Blog Thumbnail

Four key FX trends facing fund managers in Canada

The original version of this article first appeared in <a title="The CFO website" href="https://the-cfo.io/2023/08/29/corporates-are-not-out-of-the-woods-when-it-comes-to-fx-volatility/" target="_blank" rel="noopener">The CFO</a> on the 29th of August 2023.
Foreign exchange (FX) risk management has risen to the top of the agenda for many senior finance decision-makers at corporates throughout 2023.
Although volatility has decreased in recent months, it is still a persistent threat due to a combination of <a title="rising interest rates" href="https://www.bbc.com/news/business-65474456" target="_blank" rel="noopener">rising interest rates</a>, <a title="high inflation" href="https://www.bbc.co.uk/news/business-64639662" target="_blank" rel="noopener">high inflation</a> and <a title="geopolitical uncertainty" href="https://www.imf.org/en/Blogs/Articles/2023/04/05/geopolitics-and-fragmentation-emerge-as-serious-financial-stability-threats" target="_blank" rel="noopener">geopolitical uncertainty</a>.
This is particularly the case for North American firms transacting in the US dollar. Having slid to a <a title="Reuters website" href="https://www.reuters.com/markets/currencies/dollar-pauses-ahead-fed-rate-decision-2023-02-01/" target="_blank" rel="noopener">nine-month low</a> in February 2023, it <a title="Reuters website" href="https://www.reuters.com/markets/currencies/dollar-front-foot-after-robust-us-jobs-data-yen-falters-2023-02-06/" target="_blank" rel="noopener">rebounded</a> slightly before once again falling to its <a title="Reuters website" href="https://www.reuters.com/markets/currencies/dollar-slides-ahead-us-inflation-data-sterling-hits-15-month-peak-2023-07-12/" target="_blank" rel="noopener">lowest</a> level in more than a year in recent weeks.
Fluctuations in the US dollar have had a major impact on North American firms who, according to Kyriba&rsquo;s <a title="July 2023 Currency Impact Report" href="https://www.businesswire.com/news/home/20230718675856/en/Kyriba%E2%80%99s-Quarterly-Currency-Impact-Report-Multinationals%E2%80%99-FX-Headwinds-Wipe-Out-22B-in-Revenue" target="_blank" rel="noopener">July 2023 Currency Impact Report</a>, reported $21.24 billion in FX headwinds in Q1 2023 &ndash; up 45% from the same time last year.
While firms are likely to welcome the recent drop in FX volatility, it is vital that they don&rsquo;t become complacent. With <a title="IMF" href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023#:~:text=The%20outlook%20is%20uncertain%20again,at%203.0%20percent%20in%202024." target="_blank" rel="noopener">uncertainty</a> set to stay, we believe corporates need to adapt their FX risk management strategies to stay ahead of the curve.
&nbsp;
<h2>The shifts in hedging practices</h2>
According to MillTech&rsquo;s own <a title="2023 CFO FX survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">2023 CFO FX survey</a>, over two-thirds (68%) of North American firms have experienced heightened FX risk as a result of US dollar volatility.
CFOs are adapting their hedging strategies to make sure this risk is managed as effectively as possible, typically hedging a higher amount of their exposure to increase their protection. <a title="MillTechFX Survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">Our survey</a> found that the average hedge ratio was between 60% - 69%, with nearly eight out of ten (79%) corporates citing this as higher compared to this time last year.
Similarly, rather than using long-dated FX forwards of up to two years, many are now locking in rates of six months or less with the average length of hedges at <a title="Currency NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">five and a half months</a>. This suggests that corporates are opting for shorter hedge lengths to add an extra layer of nimbleness and flexibility should the market move against them, enabling firms to adjust their exposure if they need to.
About <a title="NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">three-quarters of firms</a> report that the cost of hedging has increased over the past year. This means that looking ahead, corporate treasurers may consider balancing the cost of hedging against the risk of not hedging and the potential impact this may have on the bottom line.
&nbsp;
<h2>From past to present</h2>
Despite the renewed focus on managing the threat of currency movements, many firms still lack the necessary tools and infrastructure to mitigate this risk, with a <a title="NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">third</a> rating their FX set-up as below average or worst in class.
One of the main reasons for this is the persistence of manual legacy systems which can be extremely cumbersome and inefficient. Our <a title="Milltechfx survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">survey</a> found that 40% of corporate treasurers have to manually send or upload files for instructing financial transactions, with 35% relying on phone and 34% on email.
FX price discovery can often involve multiple phone calls, e-mails or online platforms to log in to just to get a quote from your counterparties. If its best rate wins, because the market moves by the half second, price discovery requires a team of people; calling, e-mailing and logging in simultaneously before they can collectively decide who offered the best quote.
Price discovery is just the first step in the FX booking process. After a rate is booked in, trade confirmations usually arrive by e-mail. Settlement must then be processed, payment details entered and checked and approval from different layers of seniority can be required.
All of this internal, manual and siloed communication is extremely inefficient. And this is just for one, single trade. Many organizations execute tens or hundreds of trades every month with different products and mechanics, making the entire process a huge drain on time and resources. Corporate treasury teams spend on average <a title="na survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">2.31 days</a> per week on FX-related matters, while <a title="NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">72%</a> have three or more people tasked with FX activities.
It is therefore unsurprising that many firms are seeking to embrace digitization to improve operational efficiency, with <a title="Milltechfx NA survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">81%</a> of corporate treasurers looking into new technology and platforms to automate their FX operations.
<h2>&nbsp;</h2>
<h2>How MillTech can help&nbsp;</h2>
Much of the recent focus has been on whether volatility will resurge during the second half of 2023, but the more important factor at play is the <a title="IMF website" href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023#:~:text=The%20outlook%20is%20uncertain%20again,at%203.0%20percent%20in%202024." target="_blank" rel="noopener">uncertain economic outlook</a> itself.
Hedging currency risk is one of the primary ways that firms can mitigate the risk posed by this uncertain climate, and while there will always be some that don&rsquo;t hedge their FX risk at all, many are now considering doing so to protect their bottom lines.
MillTech's FX-as-a-Service model helps corporates and global businesses significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an <a title="FX multi-bank platform" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">end-to-end solution</a>, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="Contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

Foreign exchange (FX) risk management has risen to the top of the agenda for many senior finance decision-makers at corporates throughout 2023.

Usblog

US corporates face FX uncertainty amid volatility

In a <a title="ChatGPT and We &ndash; Exploring generative AI use cases for MillTechFX" href="https://milltechfx.com/resources/blog/chatgpt-milltechfx-exploring-generative-ai-use-cases" target="_blank" rel="noopener">previous blog,</a> I discussed how the tech team here at MillTech were exploring generative artificial intelligence (AI) for a number of use cases. I discussed our early exploration, checking out ChatGPT&rsquo;s code writing abilities, testing if it could draft strong policy boilerplates and, most importantly, asking it how to dress for a smart casual-themed party.
In the six months since, our exploration has turned into implementation. We continued to tinker with the technology and are implementing tools which are accelerating our work, ultimately benefiting our customers.
&nbsp;
<h2>Building on our AI heritage</h2>
The Millennium Group had a long track record of using AI to deliver business value. Systematic (or quantitative) investment processes were a core part of the service offering at Millennium for many years, so it&rsquo;s safe to say we&rsquo;re comfortable with the technology.
We applied the same institutional approach to generative AI, that we do with all emerging technology &ndash; analysing the risks as we explore the opportunities of the new technology.
Data loss, hallucinations and entrenching bias are just some of the very real risks of generative AI. To manage these, we set out a policy that allows us to identify and mitigate risks that come with a specific use case or generative AI technology choice.
&nbsp;Key areas of this policy are:
<ul>
<li>Input information: Scrutinising the quality and source of input data to ensure its reliability.</li>
<li>Algorithm choice: Carefully selecting the appropriate algorithm for each use case.</li>
<li>Output information: Evaluating the output for accuracy.</li>
<li>Legal and regulatory compliance: Staying informed about evolving regulations and adapting their practices accordingly.</li>
<li>Human oversight: Maintaining a level of human oversight to ensure responsible AI use.</li>
</ul>
&nbsp;
<h2>Rolling out generative AI tools</h2>
Our AI heritage combined with an institutional approach to the technology enabled us to rapidly explore and adopt generative AI in a safe, compliant manner. So far, we have focused our initial efforts on two internal use cases:
Speeding up compliance &ndash; Part of our offering is to deliver express onboarding with our 15 counterparty banks. We have a unique advantage in that we have significant experience in KYC and AML in foreign exchange (FX). However, even with this experience, it&rsquo;s still a laborious process. It typically involves reviewing complicated legal documents and finding specific information from within these documents. It can be a bit like finding a needle in a haystack. To improve this process, we built a generative AI tool that allows us to rapidly find these answers and further accelerate the onboarding process.
Creating development efficiencies - As our business grows our code base grows too. As it grows, an individual developer might need to create a feature that requires them to understand a part of the system they have not worked with before. Businesses typically overcome this problem by writing and maintaining documentation, though these efforts create an overhead and are rarely accurate. Instead, we feed parts of our code base to a Generative AI model to allow developers to ask questions to the code and return the true answers rather than searching through documentation, saving valuable time.
Given it offers affordable access, generative AI can solve a whole new class of problem. As a high growth business, there is always much more to do than can be done. Generative AI is enabling our team members to automate time-consuming tasks and accelerate their work, freeing them up to focus on higher value activities.
&nbsp;
<h2>What&rsquo;s next for generative AI at MillTech?</h2>
The pace of change in generative AI is so fast. Open source models that performed poorly when first released, take only days to overtake their competitors. Keeping up with this pace of change is only possible if you get hands-on and work with real use cases.
Regulators are working hard to keep up but, in the meantime, the focus must be on organisations using the technology, acting responsibly and managing the risks.
Beyond operational efficiencies, we are also in the earlier stages of analysing how we can incorporate generative AI into decision-making enhancement tools for our clients. We are using certain machine learning (ML) algorithms to combine macroeconomics, market dynamics, price changes and alternative data sources to generate signals that our clients could use to help them with when and how they execute for their transactional or hedging FX requirements.
We plan to continue exploring the technology as the more we work with it, the more ideas it sparks for applications within our business. We run hackathons to rapidly allow us to explore different use cases and technology variants.
The genie is well and truly out of the bottle with generative AI and any organisation that&rsquo;s not thinking about how this technology can enhance their offering risks being left behind.
&nbsp;

In the six months since, our exploration has turned into implementation. MillTech continued to tinker with the AI technology and are implementing tools...

Sam Thumbnail Generative Ai

How MillTech is embracing generative AI in FX operations

On the 23rd of August, <a title="the Securities and Exchange Commission (SEC)" href="https://www.sec.gov/" target="_blank" rel="noopener">the Securities and Exchange Commission (SEC)</a> adopted new rules that aim to <a title="bring more transparency to the $20 trillion private fund industry" href="https://www.reuters.com/markets/us/us-sec-votes-overhaul-20-trillion-private-fund-industry-2023-08-23/#:~:text=The%20new%20rules%20require%20private,funds%20to%20perform%20annual%20audits" target="_blank" rel="noopener">bring more transparency to the $20 trillion private fund industry</a>.
The changes, which mark the biggest overhaul of the private fund industry rules since the implementation of the Dodd-Frank Act in 2010, will shine a light on private equity and hedge fund expenses and fees.
Private funds are now required to issue quarterly fee and performance reports and to disclose certain fee structures while barring giving some investors preferred treatment. They also require funds to perform annual audits.
These requirements will aim to increase transparency, fairness and accountability in the rapidly growing private funds industry.
SEC Chair Gary Gensler told reporters after the panel's vote, "Investors, large or small, benefit from greater transparency, competition and integrity.&rdquo;
&nbsp;
<h2>Parallels with the FX market</h2>
This is a positive move to bring fairness, equality and transparency to an industry that has been skewed towards the biggest players and suffered with opacity for years.
There are parallels with the foreign exchange industry too. Many corporates and asset managers continue to significantly overpay for their currency execution and hedging requirements.
This is because of two long-standing problems that they typically face when it comes to FX.
1. Lack of transparency - Transaction costs can be hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. Moreover, corporates and fund managers tend to only work with a small number of counterparties for their FX due to the operational complexity of setting up multiple banking relationships, making it harder for them to compare prices.
2. Inconsistent pricing - Banks and brokers reserve their most competitive rates for institutions that transact the highest volumes, meaning small and mid-sized asset managers and corporates often struggle to get the best possible deal. This is no secret. The European Central Bank produced a&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=http-3A__www.haraldhau.com_wp-2Dcontent_uploads_FX-5FPriceDiscrimination-5Fin-5FFX-5FOTC-5Fmarkets.pdf&amp;d=DwMF-g&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=j7VXD-4Es1waXAgaYb7Re-QQ8ygLtMPmxMCKeBiRR0_M-VcKT_6MTrGARQDJQln0&amp;m=GxCFhM6iNKWjeQST976yqvOt2zXyabGDFFtQHe7NKFM&amp;s=JW0123zfnc17HXBxVJR3i32LdOCOh-OYFRc7JZ8E2Kw&amp;e=">report</a>in 2019 that found that banks were overcharging their smaller corporate customers for FX services with hedging rates as much as 25 times higher than for their larger clients.
&nbsp;
<h2>The FX Global Code</h2>
In a bid to bring more transparency to the FX market and tackle the issues above, the BIS Foreign Exchange Working Group&nbsp;<a title=" FX Global Code of Conduct" href="https://www.globalfxc.org/press/p170525b.htm" target="_blank" rel="noopener">published the FX Global Code of Conduct</a>&nbsp;on the 25th of May 2017. It aims to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange (FX) market.&nbsp;
It is a set of global principles of good practice in the FX market, covering ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement.&nbsp;
The FX Global Code has largely been adopted and driven by the sell-side. Banks have agreed upon standard practices and helped drive out controversial practices such as last look.
But it hasn&rsquo;t had the same success with buy-side firms and corporates, many of whom don&rsquo;t know of its existence. It&rsquo;s vital that we keep working together as an industry to promote fairness, equality and transparency and encourage adoption of the FX Global Code.
&nbsp;
<h2>How MillTech is bringing transparency to FX</h2>
MillTech is levelling the playing field for mid-sized corporates and fund managers by digitising the FX process from initial price discovery right through to reporting at the end of the trade lifecycle, ensuring total transparency. The benefits of this include:
<ul>
<li>Easy and quick onboarding &ndash; Rather than spending months (even years) setting up multiple FX facilities with different counterparties, firms can sign up to MillTech&rsquo;s <a title="multi-bank FX marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank marketplace</a> and transact within weeks with multiple counterparty banks.</li>
<li>Best execution and hedging management&nbsp;&ndash; Firms benefit from multi-bank access without having to manage multiple relationships and processes. Firms can transparently compare and execute FX rates from multiple providers on a single marketplace and ensure best execution with a simple click of a button.</li>
<li>Cost savings - This model has been proven to save clients up to 70% on their execution costs.</li>
<li>Transparency &ndash; MillTech offers a fixed fee service, including third-party <a title="Transaction Cost Analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction Cost Analysis</a> (TCA) to ensure total cost transparency.</li>
</ul>
MillTech is enabling its clients to have access to live rates from multiple banks and execute at the best rate available from its counterparty banks, all whilst reducing the operational burden traditionally associated with this kind of market access.
If you&rsquo;re interested in learning more about MillTech and our commitment to best practice, <a title="contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">get in touch today.</a>

On the 23rd of August, the Securities and Exchange Commission (SEC) adopted new rules that aim to bring more transparency to the $20 trillion private fund industry.

Thumbnail Private Funds

SEC fund overhaul underscores need for FX transparency

London, 6 September 2023 - The new report from FX-as-a-Service pioneer, MillTech, has revealed that 81% of fund managers in North America are looking to diversify their FX counterparties due to the recent banking crisis. Issues at Credit Suisse, First Republic Bank, Signature Bank and Silicon Valley Bank highlighted potential risks associated with having only one or two banking partners and as a result, fund managers are moving to add more FX counterparties to protect their business.
&lsquo;<a title="The MillTechFX North America CFO FX Report 2023: The intensifying FX challenges for fund managers" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">The MillTech North America CFO FX Report 2023: The intensifying FX challenges for fund managers</a>&rsquo; carried out by Censuswide, also found that FX risk management is a top priority for fund managers. Nearly nine in ten (89%) said FX was significant to their business while 82% said US dollar volatility had impacted their business. Over 70% already have a hedging program in place, while over half (54%) of those without a hedging program are now considering implementing one.
Other hedging findings include that the average hedge ratio was between 50-59%, with almost seven out of ten (69%) fund managers stating their hedge ratio is higher than it was last year. The average length of hedges was just under five months (4.96), with 55% of fund managers citing their hedge length as longer compared to a year ago. This suggests that fund managers are moving to hedge more of their FX risk to protect their bottom lines from currency movements.
Over two-thirds (67%) of those surveyed said that the cost of hedging has gone up over the past year. Looking ahead, 47% of fund managers plan on shortening their hedge window over the next 12 months, whilst 46% plan on increasing their hedge ratio.
ESG has also continued its rise up the fund manager priority list with 79% stating that it has grown in importance to their business over the past year, whilst 35% said that the ESG practices of their counterparties were the most important factor in FX. The vast majority (97%) said ESG credentials are a consideration when selecting FX counterparties, while almost half (48%) said that their FX counterparties must have strong ESG credentials
Other notable findings include:
FX management is resource-intensive &nbsp;- 61% of fund managers task three or more people with FX-related activities. Despite the resources dedicated to setting up and maintaining their FX processes, only 9% of fund managers said their FX set-up was best in class.
Automation and digitization - 78% of those surveyed said they were looking into new technology and platforms to automate their FX operations, while automation of manual processes was the most important factor for fund managers in FX.
FX challenges &ndash; The top challenges facing senior finance decision-makers at fund managers in their FX operations are onboarding new liquidity providers (34%) and securing credit lines (33%). Unsurprisingly, transparency is also a major issue for fund managers, with cost calculation (33%) and getting comparative quotes (31%) the third and fourth biggest challenges they face.
Mapping FX exposures &ndash; Fund managers&rsquo; FX exposures come from a range of sources including investor share classes (51%), management fees (48%), foreign currency assets (44%) and within portfolio companies (43%).
<a title="Eric Huttman bio" href="https://milltechfx.com/company/leadership-team/eric-huttman" target="_blank" rel="noopener">Eric Huttman</a>, CEO of MillTech commented: &ldquo;Our research shows that fund managers are taking positive action to diversify their counterparty base to avoid having all their eggs in one (or two) baskets. This not only mitigates counterparty risk, but also provides them with more options, enabling them to compare prices, get more transparency and achieve best execution.
&ldquo;While currency volatility has fallen in recent months, the data shows that fund managers have learnt from last year which saw currency swings erode returns. An increasing number are looking to implement hedging programmes while those which already have them are adding a layer of flexibility by shortening hedge windows which helps reduce costs and the potential for margin.
&ldquo;That such a small minority of fund managers felt their FX setups were best-in-class is testament to the fact that many see significant room for improvement, especially in light of the fact that the vast majority stated FX was important to their business. Fund managers should look towards tech-enabled, automated solutions to help improve their FX processes.
&ldquo;Stakeholders are demanding progress on ESG and, in FX, fund managers are taking this seriously. It&rsquo;s an important consideration for them when selecting FX counterparties and we have found that many of our clients now ask about our own ESG practices before deciding to work with us which we think is a positive development.
&ldquo;Overall, the research has reinforced the importance of fund managers having a transparent view of their FX execution, simplifying their workflows and implementing a strong risk management strategy to protect their future returns.&rdquo;
To learn more about the FX challenges facing fund managers as well as the hedging strategies and solutions they are implementing, read the full report <a title="The MillTechFX North America CFO FX Report 2023: The intensifying FX challenges for fund managers" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">here</a>.

New report reveals 82% of Fund Managers have seen USD volatility their business, with 81% looking to diversify their FX counterparties.

Thumbnail Na Fund Manager Survey 2023

FX challenges grow for North American fund managers

According to the <a title="World Tourism Organisation" href="https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism" target="_blank" rel="noopener">World Tourism Organisation</a>, international travel plunged by 72% in 2020 - the worst year on record - causing the global tourism and travel sector an estimated <a title="$2 trillion in lost revenue in 2021" href="https://news.un.org/en/story/2021/11/1106712#:~:text=Coronavirus%20pandemic%20could%20cost%20global%20tourism%20%242%20trillion%20this%20year,-29%20November%202021&amp;text=The%20coronavirus%20pandemic%20will%20likely,fragile%22%20and%20%22slow.%22" target="_blank" rel="noopener">$2 trillion in lost revenue in 2021</a>.
While travel is gradually <a title="climbing back to pre-pandemic levels" href="https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism" target="_blank" rel="noopener">climbing back to pre-pandemic levels</a>, inflationary pressures are hampering its recovery and it&rsquo;s predicted that the industry won&rsquo;t fully recovery until <a title="2024" href="https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism" target="_blank" rel="noopener">2024</a>.
Amongst the growing number of challenges facing these firms is the threat of adverse currency movements. Their overseas exposure makes them highly susceptible to fluctuations in foreign exchange (FX) rates, but many may have traditionally seen FX as second order. They transact in FX not because they &lsquo;want to&rsquo;, but because they &lsquo;have to&rsquo; given their international nature.
We believe that now is the time for travel companies to assess the FX challenges they typically face and implement effective risk management strategies against these threats.
&nbsp;
<h2>What are the FX challenges?</h2>
Travel companies face several challenges on the FX front:
<ul>
<li>International service chain &ndash; They are particularly exposed to currency movements due to the international distribution of the tourism service chain. Tour operators, hotel chains and transport providers may all be based in different countries and therefore require payments in multiple currencies, heightening exposure to fluctuations in exchange rates.</li>
<li>Long invoice processing periods &ndash; When selling customers tours or flights, destination management companies and travel agencies often set their price well ahead of time, sometimes up to 18 months ahead. This means that if currencies fluctuate between a customer&rsquo;s advance payment and the moment foreign suppliers need to be paid, the travel company may find itself having to cover the difference.</li>
<li>Visitor-weighted exchange &ndash; Visitor weighted-exchange measures a destination&rsquo;s currency market with those of its primary visitor market. Countries that rely on a large proportion of tourists coming from one specific country are susceptible to changes in the exchange rate between these two countries. In Mexico, for example, the World Travel and Tourism Council estimates that <a title="84% of international arrivals come from countries using the US dollar" href="https://worldtraveltourismcouncil.medium.com/the-effect-of-exchange-rate-trends-on-travel-tourism-performance-8a74b3fb1233" target="_blank" rel="noopener">84%</a> of international arrivals come from countries using the US dollar. This means where the visitor-weighted exchange is high, fluctuations in exchange rate may have a particularly large impact on the destination country&rsquo;s travel sector.</li>
</ul>
&nbsp;
<h2>A more strategic approach to FX risk management</h2>
Whilst FX management cannot change the external environment, there are several steps that travel companies can take to reduce the associated costs and minimise volatility risk. These include:
1. Use of Transaction Cost Analysis (TCA) - TCA was specifically created to highlight hidden costs and enables firms to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.
2. Compare the market - Many travel firms may be hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements which can be a barrier to best execution. Having the ability to put trades up for competition is central to ensuring access to the best price, which is key to effective risk management.
3. Outsourcing &ndash; When using the right partner, outsourcing can improve transparency and execution quality. This can enable travel firms to dedicate more time to core business matters, which is all the more important given the current <a title="high operating costs" href="https://www.cips.org/supply-management/news/2022/august/business-travel-costs-set-to-rise-throughout-2023/#:~:text=The%20report%2C%20by%20the%20Global,year%20and%208.2%25%20in%202023." target="_blank" rel="noopener">high operating costs</a>.
4. Strong governance &ndash; The tourism service chain can be logistically complex, from tour operators to accommodation and transport providers, with each potentially requiring payment in different currencies. Harnessing solutions which can strengthen governance may help travel firms improve the cost, quality and transparency of their FX execution.
5. Diversification of liquidity providers - One of the big lessons from recent banking failures is the importance of having access to multiple counterparties. Many CFOs have taken this lesson onboard and are now making changes for the better, with <a title="88% exploring diversifying their FX across more counterparties" href="https://milltechfx.com/resources/blog/corporates-%20move-to-diversify-fx-counterparties-following-banking-crisis/" target="_blank" rel="noopener">88%</a> exploring diversifying their FX across more counterparties. This means if one counterparty becomes unavailable, a travel company can continue to manage and execute FX trades.
6. Automation &ndash; Many travel firms may still lack the necessary tools to mitigate the impact of FX volatility and continue to rely on manual processes like phone and email to execute FX trades. Harnessing automated solutions can offer end to end workflow, greater transparency and faster onboarding, helping finance departments streamline their FX functions.
&nbsp;
<h2>How MillTech can help</h2>
With&nbsp;<a title="uncertainty fx" href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.imf.org_en_Publications_WEO_Issues_2023_04_11_world-2Deconomic-2Doutlook-2Dapril-2D2023-23-3A-7E-3Atext-3DThe-2520outlook-2520is-2520uncertain-2520again-2Cat-25203.0-2520percent-2520in-25202024.&amp;d=DwMFaQ&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=j7VXD-4Es1waXAgaYb7Re-QQ8ygLtMPmxMCKeBiRR0_M-VcKT_6MTrGARQDJQln0&amp;m=MYAd916oVsVZOrjyVzwe1y1I2sgOEair37CtA1IW9aCSwPvr1rRRx1PWFlWNWdMs&amp;s=JeAZ1j7-pGH8BSoPTGoWk3-lpzdjicmkSv-JpjVYQkA&amp;e=" target="_blank" rel="noopener">uncertainty</a>&nbsp;set to stay, we believe it is vital that travel firms get the right tools and processes in place to protect their bottom lines against the threat of currency movements.
MillTech&rsquo;s market access, pricing power and operational resource enables it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for travel companies.
We provide access to a <a title="transparent fx marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing a unique and significant pricing efficiency for our clients. Rather than spending months setting up multiple FX facilities with different counterparties, travel firms can sign up and begin transacting within weeks.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

There are several steps that travel companies can take to reduce the associated FX costs and minimise volatility risk...

Thumbnail   How Can The Travel Industry Adapt to Mounting Fx Challenges

How the travel industry can adapt to mounting FX challenges

London, 13 July 2023 - A new report from FX-as-a-Service pioneer, MillTech, has revealed that many corporates in North America are looking to diversify their FX counterparties after the recent banking crisis highlighted the potential risks associated with having only one or two banking partners.
The report entitled &lsquo;<a title="MillTechFX North America CFO FX Report 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">The MillTech North America CFO FX Report 2023: The intensifying FX challenges for corporates&rsquo;</a> carried out by Censuswide found that 88% of corporates are exploring diversifying their FX counterparties after the banking crisis at Silicon Valley Bank, Credit Suisse, First Republic Bank and Signature Bank. The crisis highlighted that a bank&rsquo;s failure can cause <a title="serious short-term liquidity issues" href="https://www.standard.co.uk/business/we-can-t-make-payroll-scores-of-tech-firms-in-cash-crisis-amid-silicon-valley-bank-collapse-fintech-insolvency-b1066554.html" target="_blank" rel="noopener">serious short-term liquidity issues</a> which can affect vital expenditure such as payroll and supplier invoices, even if it&rsquo;s only for a few days.
Managing currency exposures is also at the top of corporate&rsquo;s priority list with 68% experiencing increased risk as a result of US dollar volatility. &nbsp;Over four-fifths of corporates already have a hedging program in place, and out of the 19% that do not, 69% are considering doing so given market volatility. The average hedge ratio was 60-69%, and nearly eight out of ten (79%) corporates cited their hedge ratio as higher compared to this time last year. The vast majority (75%) said the cost of hedging had increased in the past year.
Looking ahead, half of corporates plan on increasing their hedge ratio over the next 12 months, while 43% plan on lengthening their hedge window.
Other notable findings include:
Persistence of legacy systems &ndash; Many corporates&rsquo; FX processes are manual, cumbersome and time-consuming with 40% of senior finance decision-makers sending or uploading files, 35% relying on phone and 34% using email to instruct financial transactions.
Time-consuming processes - Corporate treasury teams spend on average 2.3 days per week on FX-related matters, while nearly one in five of those surveyed (19%) said they spent four to five days. Nearly three-quarters (72%) of treasury teams have three or more people tasked with FX activities.
Barriers to best execution &ndash; The most important aspect of corporates&rsquo; FX operations is transparency of costs (37%) and the top two most challenging aspects of corporates&rsquo; FX operations were forecasting exposure (35%) and cost calculation (34%).
Automation - 81% of those surveyed said they were looking into new technology and platforms to automate their FX operations, while 32% said automation of manual processes was the most important factor in FX.
Rising importance of ESG - 90% of those surveyed said that ESG has grown in importance to their business over the past year, whilst 31% said that the ESG practices of their counterparties were the most important factor in FX. Over half (54%) said that their FX counterparties must have strong ESG credentials.
Eric Huttman, CEO of MillTech commented: &ldquo;The recent banking crisis has acted as a wake-up call for the industry and it&rsquo;s positive to see corporates looking to diversify their counterparties to enhance their risk management. This has the added benefit of providing them with the ability to compare prices, aiding transparency and enabling best execution.
&ldquo;The combination of currency market swings and a difficult macro environment has created uncertainty for CFOs who are now prioritising risk management. Our research shows that in FX this has led to corporates hedging more of their risk, whilst also prioritising transparency and high-credit quality counterparties.
&ldquo;Despite the existence of tech-enabled FX solutions, many corporates are still relying on manual processes, phone calls and emails to transact in FX. This can be both extremely inefficient and a huge drain on time and resources. It&rsquo;s clear corporates are starting to move away from this model and are increasingly exploring tech-enabled, automated solutions.
&ldquo;The broad rise in ESG as a key priority, applying to corporates and the FX market as a whole, is more than just box-ticking. Stakeholders including shareholders, clients and employees are demanding progress in this critical area. Many of our clients now ask about our own ESG practices before deciding to work with us, and a majority actually mandate that their counterparties have strong ESG credentials. It&rsquo;s important to our clients, and it&rsquo;s important to us.
&ldquo;Ultimately, the research has highlighted that it is more important than ever that corporates gain a transparent view of their FX execution, streamline their operational workflows and implement a carefully thought-out risk management strategy to manage their currency exposures throughout the rest of 2023 and beyond.&rdquo;
To learn more about the FX challenges facing corporates as well as the hedging strategies and solutions they are implementing, <a title="MillTechFX NA CFO FX report" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">read the full report here</a>.

A new report has revealed that many corporates in NA are looking to diversify their FX counterparties after the recent banking crisis.

Thumbnail   Diversify Fx Counterparties

Why Corporates are rethinking FX counterparties

MillTechFX took home three prestigious awards in June, highlighting the success of our independent FX-as-a-Service offering in significantly reducing both FX costs and operational burdens associated with FX execution and hedging requirements.
We are very pleased to have won:
<ul>
<li>Best FX Provider at the <a title="Hedgeweek and Private Equity Wire US Credit Awards" href="https://www.hedgeweek.com/2023/06/22/320942/hedgeweek-and-private-equity-wire-announce-winners-inaugural-us-credit-awards" target="_blank" rel="noopener">Hedgeweek and Private Equity Wire US Credit Awards</a></li>
<li>Best e-FX Solution for Corporates at the <a title="FX Markets e-FX Awards" href="https://events.fx-markets.com/efxawards/winners" target="_blank" rel="noopener">FX Markets e-FX Awards</a></li>
<li>Startup of the Year at the <a title="Business Awards UK" href="https://business-awards.uk/2023-fintech-awards-results/" target="_blank" rel="noopener">Business Awards UK</a></li>
</ul>
We were also a finalist in the Best FX Trading Platform and a runner-up in the Startup of the Year categories at the <a title="Financial News Trading and Technology Awards" href="https://www.fnlondon.com/articles/winners-in-pictures-industry-stars-celebrate-at-fns-trading-and-tech-awards-cboe-jpmorgan-state-street-morgan-stanley-rosenblatt-securities-20230607" target="_blank" rel="noopener">Financial News Trading and Technology Awards</a>.
Eric Huttman, CEO of MillTech, commented: &ldquo;The award wins and nominations across a number of client industries are testament to our team&rsquo;s hard work and validate progress we have made to level the playing field in the FX market.
&ldquo;Fund managers and corporates continue to overpay for their FX needs due to an inherent lack of transparency and inconsistent pricing in the FX market. We are tackling these issues head on by automating the entire FX workflow and ensuring transparent best execution &ndash; saving clients time and costs.
&ldquo;We have just scratched the surface of our global ambitions and so look forward to building on our success achieved so far.&rdquo;
<h2>Increasing demand for MillTech&rsquo;s FXaaS offering</h2>
MillTech has seen a large increase in client demand with monthly revenue and committed client numbers rapidly increasing over the past six months.
This has been driven by increasing recognition of the importance of FX risk management for senior-finance decision makers across the globe combined with their desire for a transparent, operationally efficient solution.
Many mid-sized asset managers and corporates continue to significantly overpay for their currency execution and hedging requirements. This is typically because of two long-standing problems that they face when it comes to FX:
Lack of transparency - Transaction costs can be hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. Moreover, corporates tend to only work with a small number of counterparties for their FX due to the operational complexity of setting up multiple banking relationships, making it harder for them to compare prices.
Inconsistent pricing - Banks and brokers tend to reserve their most competitive rates for institutions that transact the highest volumes, meaning small and mid-sized corporates struggle to get the best possible deal. This is no secret. The European Central Bank produced a&nbsp;<a title="report" href="https://urldefense.proofpoint.com/v2/url?u=http-3A__www.haraldhau.com_wp-2Dcontent_uploads_FX-5FPriceDiscrimination-5Fin-5FFX-5FOTC-5Fmarkets.pdf&amp;d=DwMF-g&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=j7VXD-4Es1waXAgaYb7Re-QQ8ygLtMPmxMCKeBiRR0_M-VcKT_6MTrGARQDJQln0&amp;m=GxCFhM6iNKWjeQST976yqvOt2zXyabGDFFtQHe7NKFM&amp;s=JW0123zfnc17HXBxVJR3i32LdOCOh-OYFRc7JZ8E2Kw&amp;e=" target="_blank" rel="noopener">report</a> that found that banks were overcharging their smaller corporate customers for FX services with hedging rates as much as 25 times higher than for their larger clients.
MillTech is levelling the playing field for these firms by digitising the FX process from initial price discovery right through to reporting at the end of the trade lifecycle. The benefits of this include:
<ul>
<li>Easy and quick onboarding &ndash; Rather than spending months (even years) setting up multiple FX facilities with different counterparties, firms can sign up to MillTech&rsquo;s multi-bank marketplace and transact within weeks with multiple counterparty banks.</li>
<li>Best execution and hedging management&nbsp;&ndash; Firms benefit from multi-bank access without having to manage multiple relationships and processes. Firms can transparently compare and execute FX rates from multiple providers on a single marketplace and ensure best execution with a simple click of a button.</li>
<li>Cost savings - This model has been proven to save clients up to 70% on their execution costs.</li>
<li>Transparency&nbsp;&ndash; MillTech&nbsp;offers a fixed fee service, including third-party Transaction Cost Analysis (TCA) to ensure total cost transparency.</li>
</ul>
MillTech is enabling its clients to have access to live rates from <a title="multiple banks platform" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multiple banks</a> and execute at the best rate available from its counterparty banks, all whilst reducing the operational burden traditionally associated with this kind of market access.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

MillTechFX took home three prestigious awards in June, highlighting the success of our independent FX-as-a-Service offering in significantly reducing both FX costs...

Startup of The Year MillTechFX

Best FX Provider & e-FX Solution for Corporates

The BIS Foreign Exchange Working Group <a title="FX Global Code of Conduct" href="https://www.globalfxc.org/press/p170525b.htm" target="_blank" rel="noopener">published the FX Global Code of Conduct</a> on 25 May 2017 with the aim of providing a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange (FX) market.&nbsp; 
It is a set of global principles of good practice in the FX market, covering ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement.&nbsp; 
The FX Global Code has improved practices across the industry while promoting transparency and spurring debate in key areas such as transaction cost analysis. &nbsp; 
But a lot has changed in the past six years and if it&rsquo;s to remain relevant, it&rsquo;s important the FX Global Code is a living code of conduct that continues to adapt to this everchanging market.&nbsp;
<h2>Boosting adoption&nbsp;</h2>
The FX Global Code was published with the aim of promoting integrity and setting out best practice across the wholesale FX market. &nbsp; 
The code is voluntary, and out of the 1,150+ signatories who have registered, there are currently only 84 asset managers, 30 corporates and 15 pension funds according to the <a title="GFXC&rsquo;s public register" href="https://www.globalfxc.org/global_index.htm" target="_blank" rel="noopener">GFXC&rsquo;s public register</a> 
Convincing end users in the FX market to sign up to the code has always been an issue but the GFXC has been working to further strengthen FX Global Code adherence. &nbsp; 
To support market participants with less complex FX activities, in December 2022, <a title="GFXC members agreed to commission" href="https://www.globalfxc.org/press/p221206.htm" target="_blank" rel="noopener">GFXC members agreed to commission</a> a Digital Proportionality Tool for facilitating FX Global Code adherence.&nbsp; 
The GFXC Chair Andr&eacute;a M. Maechler <a title="The GFXC expressed her expectation" href="https://www.globalfxc.org/press/p221206.htm" target="_blank" rel="noopener">expressed her expectation</a> that this mechanism will give new impetus to the promotion of the Code: &ldquo;I am convinced that the Digital Proportionality Tool will attract more new signatories to the Code, especially from the still underrepresented buy-side community.&rdquo;&nbsp;
At MillTech, we believe it is vital to heighten awareness of the code among buy-side firms and corporates as it enables them to scrutinise their liquidity providers and partners&rsquo; processes against best practice, leading to a fairer and more transparent FX market.&nbsp;
<h2>The rising importance of ESG </h2>
Slowly but surely ESG is filtering into FX. According to MillTech&rsquo;s own <a title="2022 fund manager FX survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">2022 fund manager FX survey</a>, 58% of fund managers said that their FX counterparties must have strong ESG credentials while 36% said that it was an important consideration.&nbsp;
A lot of the focus has however, been on the first two letters of the acronym &ndash; &lsquo;E&rsquo; (environmental) and &lsquo;S&rsquo; (social), while the &lsquo;G&rsquo; (governance) may often be seen as the less important of the three letters.&nbsp;&nbsp;
Strong governance in areas such as regulatory compliance, transparency and implementation of industry best practices must form a central element of any business seeking to be a good corporate citizen.&nbsp;
The GFXC has moved to embed the FX Global Code in firms&rsquo; ESG practices. Its members supported the possibility of a partnership with rating agencies so that anyone who signs the code can be recognised as having fulfilled the governance element of their ESG commitments&nbsp;
<a title="The FX global code website" href="https://www.globalfxc.org/press/p221206.htm" target="_blank" rel="noopener">Stefanie Holtze-Jen said</a>: "Creating tangible benefits and lowering barriers to adherence for the buy side are key for further anchoring the Code in the FX market."&nbsp;
If made by the GFXC, this move would be a great way to enable &lsquo;G&rsquo; to catch up with &lsquo;E&rsquo; and &lsquo;S&rsquo; which remain well ahead.&nbsp;
<h2>Renewing commitment to the code</h2>
The FX Global Code has largely been adopted and driven by the sell-side. Banks have agreed upon standard practices and helped drive out controversial practices such as last look.&nbsp;
But its future relies upon its ability to appeal to other important parts of the market. Many buy-side firms and corporates don&rsquo;t even know of its existence and it&rsquo;s vital the GFXC works to raise awareness and adoption among this core segment.&nbsp;
We need more initiatives like the Digital Proportionality Tool and potential link ups with the ESG rating agencies to continue to drive the FX Global Code forward and ensure it&rsquo;s relevant for years to come.&nbsp;
If you&rsquo;re interested in learning more about MillTech and our commitment to best practice, <a title="contact us" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">get in touch today.</a>

The FX Global Code has improved practices across the industry while promoting transparency and spurring debate in key areas such as transaction cost analysis...

Thumbnail Six Years after Its Introduction, How Can The Fx Global Code Remain Relevant

Is the FX Global Code still relevant in 2025?

The recent woes of Silicon Valley Bank, Credit Suisse and First Republic Bank has brought counterparty diversity and due diligence back into the spotlight for many <a title="fund managers" href="https://milltechfx.com/clients/fund-managers-and-institutional-investors/" target="_blank" rel="noopener">fund managers</a>. When it comes to FX risk management, many fund managers are considering the best way to implement a more robust FX infrastructure and insulate themselves from future shocks.
<ul>
<li><a href="#risksassociatedwithlimitedfxcounterparties">The risks associated with limited FX counterparties</a></li>
<li><a href="#lessonslearnedinthefxmarket">Lessons learned in the FX market</a></li>
<li><a href="#duediligencemonitoring">FX due diligence monitoring</a></li>
<li><a href="#importanceofcounterpartydiversity">The importance of counterparty diversity</a></li>
<li><a href="#reducingdirectcounterpartyrisk">Reducing direct counterparty risk</a></li>
<li><a href="#barrierstomultiplecounterparties">Barriers to having and maintaining multiple counterparty relationships</a></li>
<li><a href="#thesolution">The solution</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="risksassociatedwithlimitedfxcounterparties">What are the risks?</h2>
Firstly, it&rsquo;s important to frame what the risks to a fund manager are, should a banking counterparty no longer be able to function as their FX provider. There are obvious business continuity issues and if you are a fund manager who overlooks different share classes, invests overseas or converts management fees into foreign currencies - then you will not be able to perform these functions until you have a new facility open with a different FX counterparty.
Other risks to consider might include&hellip;
<ul>
<li>In-the-money FX hedges &ndash; if a fund manager has open <a href="https://milltechfx.com/resources/glossary/fx-forward/" target="_blank" rel="noopener">FX forwards</a> with a failing counterparty and those positions have a positive mark-to-market (i.e. they make a profit if they were to be sold back into the market today at the prevailing spot rate), then the manager might be at risk from not realising that mark-to-market gain.</li>
<li>Loss of collateral &ndash; if a fund manager has had to post collateral with their counterparty in order to book an FX forward, then that collateral may be at risk, in a similar way to cash deposits.</li>
<li>Not being able to maintain the FX hedge &ndash; crucially, there is a risk that any pre-existing forward contract will not be honoured. If the purpose of that forward was to mitigate the effect of FX volatility on a portfolio of foreign currency assets, then fund level returns could be negatively impacted.</li>
</ul>
<h2 id="lessonslearnedinthefxmarket">Lessons learned in the FX market</h2>
Spanish philosopher, George Santayana is famously quoted as saying &ldquo;Those who cannot remember the past are condemned to repeat it&rdquo; which was ironically paraphrased and repeated by many other prominent historical figures.
The 2008 Global Financial Crisis is one event in recent history that brought to light many faults and failings in the banking world.
One key takeaway for any fund manager should have been - don&rsquo;t put all your eggs in one basket when it comes to banking relationships.
Still, that&rsquo;s not particularly helpful advice for a fund manager that isn&rsquo;t currently well diversified and has overlooked this potential business risk.
As the dust settles on the recent turmoil in the banking market, fund managers can learn several lessons from this event and help &lsquo;future proof&rsquo; their organisation should similar shocks reoccur. &nbsp;
&nbsp;
<a title="Request a free TCA" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
<h2>&nbsp;</h2>
<h2 id="duediligencemonitoring">FX due diligence &amp; monitoring</h2>
Recent events underscore the importance of due diligence when selecting banking counterparties.
It is essential to thoroughly vet potential banking partners and assess their financial stability, risk management practices, and reputation before beginning a relationship.
Ongoing due diligence should be carried out regularly, until that relationship comes to an end, which might involve:
<ul>
<li>Daily monitoring of CDS levels and AML/compliance alerts.</li>
<li>Checking for updates from ratings agencies.</li>
<li>Regular communication with the front office at each bank and annual reviews.</li>
</ul>
It is vital to keep track of any changes in the financial stability of banking counterparties and adjust a panel of banks accordingly. By doing so, fund managers can help ensure they are partnering with financially stable banks that can provide reliable services.
<h2>&nbsp;</h2>
<h2 id="importanceofcounterpartydiversity">The importance of counterparty diversity</h2>
Counterparty diversity is a pre-requisite for FX best execution and best execution should be a priority for any fiduciary firm. By having a panel of banks at their disposal, fund managers can ensure they have access to a variety of liquidity providers, which can improve the efficiency and execution of your trades.
However, for some fund managers, FX might be considered a non-core business activity meaning counterparty diversity may have been overlooked.
When it comes to foreign exchange trading, counterparty diversity means having relationships with <a title="multiple banks" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multiple banks</a> and not relying on just one to execute trades. In the context of recent events, this is important because if one bank were to fail, it could have serious consequences for your fund's trading activities, and potentially lead to significant losses.
<h2>&nbsp;</h2>
<h2 id="reducingdirectcounterpartyrisk">Reducing direct counterparty risk</h2>
The ability to hedge foreign exchange risk without having to post collateral in the form of initial margin or variation margin offers numerous benefits to almost any type of investor.
No margin hedging allows fund managers to remain fully invested while mitigating their FX risk.
It also enables fund managers to better forecast future cash flows as they are not at risk of daily margin calls. They can therefore focus on the core task at hand, maximising returns.
Fund managers should also consider, that because capital hasn&rsquo;t been deposited with their banking counterparties in the form of initial margin or variation margin, their collateral isn&rsquo;t at risk if their bank faces hard times.
<h2>&nbsp;</h2>
<h2 id="barrierstomultiplecounterparties">Barriers to having and maintaining multiple counterparty relationships?</h2>
To summarise, fund managers should consider three things to help insulate their FX function from future turmoil in the banking market:
<ul>
<li>Raise the bar on counterparty dye diligence and monitoring.</li>
<li>Have a <a title="multi-bank FX panel" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX panel</a> at your disposal.</li>
<li>Seek to negotiate no-margin hedging terms with your FX panel.&nbsp;</li>
</ul>
However, in our opinion this is easier said than done.
In a post from 2021, we wrote about <a title="the roadblocks to fund managers accessing FX best execution" href="https://milltechfx.com/resources/blog/approach-to-FX-best-execution/" target="_blank" rel="noopener">the roadblocks to fund managers accessing FX best execution</a>, and best execution is synonymous with counterparty diversity.
We commented that setting up new FX relationships can be labour intensive and difficult which was recently supported by the MillTech CFO FX Survey <a title="&ldquo;The intensifying FX challenges for Fund Managers&rdquo;." href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">&ldquo;The intensifying FX challenges for Fund Managers&rdquo;.</a>
In our survey of 250 fund managers we should also note that -
<ul>
<li>88% of respondents said it took them between 6 months and 1 year to setup their current FX infrastructure meaning fund managers should plan ahead and should not assume they can quickly set up FX facilities elsewhere.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/148dab86-73a2-4142-98a5-9fe320a9ade8" alt="Graph representing time taken to setup current FX infrastructure" width="492" height="350">
<ul>
<li>35.6% of those surveyed said that onboarding liquidity providers (i.e. getting setup with FX counterparties) was the most challenging aspect of their FX operation which is directly related to having a multi-bank FX panel.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/35f6ff92-3278-440b-94e6-382e8e0bc851" alt="Graph representing challenges of FX operations" width="518" height="350">
<ul>
<li>34% said that securing credit lines was their biggest challenge when dealing with FX, meaning that negotiating no-margin hedging terms is difficult to achieve.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/40e40b9f-7b3f-4a2d-947e-15fe8ff52d81" alt="Graph representing biggest challenges when dealing with FX" width="517" height="350">
<h2 id="thesolution">The Solution</h2>
The good news is that MillTech solutions can facilitate multibank execution on day one. Rather than having to manage multiple onboarding processes simultaneously, fund managers can plug into our ready-made marketplace that offers counterparty diversity as well as no-margin hedging.
At MillTech we carry out strict, ongoing due diligence of counterparties so the end client doesn&rsquo;t have to. This means they have a second pair of eyes to monitor performance and potentially move exposures away from that counterparty in good time.
Onboarding timeframes are drastically reduced compared to our <a title="observations from the survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">observations from the survey</a> and fund managers can set up facilities in as little as 4 weeks. Transitioning to a multibank framework can often seem like a daunting task but this can allow fund managers to pivot quickly if they are not currently well diversified.
If you are interested in find out more about our solutions, get in touch <a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

When it comes to FX risk management, many fund managers are considering the best way to implement a more robust FX infrastructure and insulate themselves from future shocks.

Fund Managers Need to Rethink Their Fx Infrastructure

Why fund managers must rethink FX infrastructure

FX has become a key consideration for many private equity firms. The combination of exposure to foreign currency assets, management fees and investor capital amongst other factors means that many private equity firms may run a high risk of being negatively impacted by currency movements. As a result, we believe private equity firms should prioritise FX risk management to protect their returns.
Here are four of our top tips to help private equity firms strengthen their FX risk management strategy.
&nbsp;
<h2>1. Transaction Cost Analysis (TCA)</h2>
Despite being one of the largest markets in the world, FX is also notoriously one of the most opaque. Transaction costs are hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. <a title="Transaction Cost Analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA </a>was specifically created to highlight hidden costs and enables firms to understand how much they are being charged for the execution of their FX transactions. It can calculate:
<ul>
<li>The cost on a trade-by-trade basis or the total portfolio cost of a dataset</li>
<li>Cost inconsistencies across product, currency pair, tenor and counterparty</li>
<li>Evidence of best execution.</li>
</ul>
Ongoing, quarterly <a title="TCA analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA analysis</a> can also be embedded to ensure consistent FX execution performance.
&nbsp;
 
<h2>2. Efficient use of capital</h2>
Having the ability to put trades up for competition is typically central to best execution, but FX pricing shouldn&rsquo;t be the only thing a private equity firm considers.
Private equity firms that hedge using forward contracts, for example, must also consider that placing a hedge typically requires margin to be posted against that position as collateral. Any capital posted as collateral, sitting dormant in a margin account and not invested, potentially earning higher returns, can cause a drag on fund performance. The FX risk, being mitigated with forward contracts, has been replaced with a potential liquidity risk.
One way around this issue is to trade via an uncollateralised FX facility so that a private equity firm can hedge (using forwards) and not worry about posting margin. If the facility is uncollateralised up to a pre-determined figure, there is a cap on how far in the red your mark-to-market can go before your counterparty has no further appetite to trade with you and starts calling for variation margin. This can result in private equity firms spreading trades between different counterparties, with FX rates being a secondary consideration, to keep sufficient headroom on trading facilities and eliminate the need to post margin altogether.
To get set up with an uncollateralised hedging facility, private equity firms can expect to share similar background information to that required for a subscription line. After all, the bank involved will have to cover any negative mark-to-market themselves.
&nbsp;
 
<h2>3. Operational Efficiency</h2>
For private equity firms, we know that <a title="best execution" href="https://www.milltech.com/resources/glossary/best-execution" target="_blank" rel="noopener">best execution</a> requires multiple counterparties, but before price discovery comes the search for eligible FX counterparties. Incumbent banking relationships are the logical place to start, and custodians, prime brokers or lenders may be able to offer FX trading services too. Where it could get challenging is establishing new relationships for FX only, as there is no guarantee a counterparty will want to onboard a client that only requires one of their services.
And then there&rsquo;s the setup phase. After negotiating the finer points of a non-disclosure agreement, a private equity firm must fill out paperwork, locate and share &lsquo;know-your-customer&rsquo; documents and then go through a credit approval process. Respective legal teams will need to work through ISDAs, CSAs and any other trading agreements before setup can even begin.
Once setup is complete, the process of price discovery can happen in several different ways &ndash; telephone dealing, onscreen quotes, chat messages and e-mails. With multiple counterparties at a private equity firm&rsquo;s disposal, it can soon turn into a time-consuming team operation to get the best available price.
For these reasons, the private capital market is moving towards solutions that assist in the onboarding of multiple banking counterparties. Private equity firms might also consider more centralised, <a title="digitised solutions" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">digitised solutions</a> that consolidate price discovery in one place at one time.
&nbsp;
 
<h2>4. Outsourcing</h2>
Research published by the investment consultant Russell Investments &ldquo;<a href="https://russellinvestments.com/-/media/files/nz/insights/1207-overpayingfx.pdf">Still Overpaying for FX&rdquo;</a> analysed 173,000 FX trades conducted on assets totalling approximately $76 billion.
It concluded that for an average $1 billion fund, savings of $330,000 per annum would have been achievable from the adoption of an agency approach where FX trading is outsourced to a third-party specialist. In some cases, funds could have saved much more.
The Russell study explicitly suggested the consideration of a model whereby a third-party specialist agent is appointed to manage FX trades and pursue competition among a panel of counterparties to achieve the best possible price.
<a title="Outsourcing" href="https://milltechfx.com/product/outsourced-execution-services/" target="_blank" rel="noopener">Outsourcing</a> can free up resources for more effective use elsewhere, enabling private equity firms to dedicate more time to core business matters. Turning to a specialist often means that the end product is also more likely to be of higher quality, leading to improved execution, saving money in the long run.
&nbsp;
<h3>How MillTech can help</h3>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Our FX-as-a-Service model helps private equity firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">end-to-end solution</a>, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a href="https://milltechfx.com/contact/">Get in touch</a>&nbsp;today to find out more.

FX has become a key consideration for many private equity firms. We believe PE firms should prioritise FX risk management to protect their returns.

Thumbnail How Can Private Equity Firms Improve Their Fx Risk Management

FX risk management strategies for private equity firms

On April 2, 2025&mdash;"Liberation Day"&mdash;the US unleashed a wave of tariffs that&rsquo;s sending shockwaves through global trade. UK exporters are now grappling with a <a href="https://lordslibrary.parliament.uk/trump-and-us-tariffs-what-might-the-impact-be-on-the-uk/" target="_blank" rel="noopener">10% tariff on goods</a> and a staggering <a href="https://www.uksteel.org/steel-news-2025/us-25-tariffs-on-uk-steel-imports-come-into-effect" target="_blank" rel="noopener">25% tariff on steel heading to the US</a>, slashing their competitiveness overnight. Experts caution that Trump&rsquo;s tariffs could result in a significant&nbsp;<a href="https://www.bbc.co.uk/news/articles/cz9x32eeegko" target="_blank" rel="noopener">&pound;22 billion export loss</a> for the UK, leaving industries scrambling to adapt.
While freight transport and logistics services aren&rsquo;t directly hit by these tariffs, the potential ripple effects are impossible to ignore. Supply chain disruptions, shrinking export volumes, and most critically, volatile FX markets are creating a perfect storm for the industry. In fact, export levels for transportation services are expected to <a href="https://citp.ac.uk/publications/trumps-tariffs-could-reduce-uk-exports-by-22-billion" target="_blank" rel="noopener">drop by 2.4%</a>.
With fluctuating exchange rates presenting a risk to profit margins and pricing stability, it's crucial for freight and logistics businesses to develop robust FX strategies to navigate these growing obstacles. Let&rsquo;s dive into how FX impacts the sector and what firms can do to stay ahead.
&nbsp;
<h2>Freight transport and FX risk</h2>
Freight transport firms face unique challenges when it comes to managing FX risk. Various factors contribute to this heightened exposure, including:
Payments &ndash;&nbsp;The FX market plays a key role in determining costs for shipping companies, impacting everything from crew payments and port duties to fuel expenses and logistics fees. With transactions conducted in multiple currencies, international shippers are exposed to FX risks, where currency fluctuations can drive up costs, shrink profit margins, and disrupt cash flow.
Freight duties -&nbsp;Freight duties form another expense for air and sea transportation businesses and can be heavily influenced by currency volatility. For example, if the currency a shipping firm is paying freight duty in is particularly strong, this would dent profit margins and drive expenses up.
Fuel costs -&nbsp;Bunker fuel can account for a staggering&nbsp;<a href="https://www.sciencedirect.com/science/article/pii/S1366554524002771" target="_blank" rel="noopener">50-60%</a>&nbsp;of a ship's total operating costs, making it a major expense for the shipping industry. With fuel typically traded in USD, the dollar&rsquo;s&nbsp;<a href="https://www.reuters.com/markets/currencies/dollar-starts-2025-higher-yen-rooted-five-month-lows-2025-01-02/" target="_blank" rel="noopener">2-year high in January 2025</a>&nbsp;has created an additional squeeze, albeit this pressure has now subsided thanks to a sharp devaluation in the in the <a href="https://www.marketwatch.com/story/the-dollar-just-had-its-weakest-start-to-a-year-on-record-why-it-might-be-doomed-to-fall-even-further-eaf23c96?" target="_blank" rel="noopener">Dollar</a>. Nevertheless, these sharp swings demonstrate how impactful a volatile FX market can be in a short space of time.
On top of this, tighter environmental regulations are reshaping the landscape of the shipping industry. The <a href="https://transport.ec.europa.eu/transport-modes/maritime/decarbonising-maritime-transport-fueleu-maritime_en#:~:text=The%20FuelEU%20maritime%20regulation%20will,2050:%20%2D80%25." target="_blank" rel="noopener">European Union&rsquo;s new marine fuel regulations</a>, effective January 2025, require companies to switch to cleaner, low-emission fuel alternatives&mdash;many of which are in short supply. Those who fail to comply face steep financial penalties. For shipping companies, this is a double-edged sword: comply and absorb higher fuel costs, or risk fines that could cripple operations.
&nbsp;
<h2>How can freight and logistics firms improve FX risk management?</h2>
To minimise FX risk, freight transport and logistics firms should consider implementing a robust FX risk management strategy. There are a number of steps that these firms can take to achieve this.
<h3>Compare the market</h3>
The ability to put FX trades up for competition is crucial for securing the best pricing and achieving best execution, both of which are essential for <a href="https://milltech.com/resources/blog/fx_risk_management_a_2025_guide_for_corporates" target="_blank" rel="noopener">effective risk management</a>. However, freight transport and logistics companies may face challenges due to limited access to Tier 1 FX liquidity. This forces them to rely on a single bank or broker for their hedging needs. Fortunately, emerging technology driven FX solutions are tackling this problem, enabling firms to secure competitive rates from various banks while streamlining the complexity of FX trades with automated workflows.
<h3>Use of Transaction Cost Analysis (TCA)</h3>
<a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA </a>was designed to uncover hidden costs, helping freight and logistics companies to understand the true cost of execution. <a href="https://milltech.com/resources/blog/the_truth_behind_the_5_biggest_myths_about_tca" target="_blank" rel="noopener">Regular quarterly TCA from an independent provider</a> can be integrated into operations to ensure consistent FX performance, allowing firms to benchmark FX rates against industry standards and refine hedging strategies for better results.
<h3>Outsourcing</h3>
Outsourcing is no longer seen as a compromise on transparency or quality&mdash;especially when you choose the right partner. In fact, it can <a href="https://dev.milltech.com/product/fx-management" target="_blank" rel="noopener">enhance FX transparency and execution quality</a>. By leveraging outsourcing, freight transport and logistics firms can free up valuable time to focus on what really matters: navigating supply chain disruptions and tackling market volatility head-on. Why settle for the old way when outsourcing offers a smarter, more efficient solution?
<h3>Strong governance</h3>
Freight and logistics firms face a complex supply chain, from scheduling and equipment prep to securing shipping lanes and insurance. This operational complexity can make it difficult to maintain FX transparency and robust foreign exchange governance. By enhancing FX frameworks with better oversight, policy adherence, and transparent execution, firms can boost cost-efficiency and oversight of their FX execution. Integrating ESG governance principles into financial operations can support better risk management and align FX practices with broader sustainability and compliance goals.
&nbsp;
<h2>How MillTech can help</h2>
With tariffs set to continue to impact the freight industry, it&rsquo;s crucial for businesses to equip themselves with the right FX risk management tools to safeguard their bottom lines against currency fluctuations. Leveraging real-time FX rates from multiple banks and forward contracts can help businesses minimise exposure to these fluctuations, protect their bottom lines, and enhance financial stability in an increasingly volatile market.
<a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">The MillTechFX Global FX Report</a> has highlighted a variety of challenges that businesses are contending with in light of volatility. An average of <a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">81%</a> of corporates across The UK, Europe and North America are now actively hedging their FX risk, and of those that do not hedge, over half (52%) are now considering doing so. With volatility influencing business decisions, the cost of protection is also a significant consideration, with four in five corporates globally experiencing rising hedging costs in the last year. This rise was most felt in Europe, where 98% of respondents said that costs had risen. Businesses in the UK and North America were less likely to be impacted by rising hedging costs, but those suffering were still in the significant majority, with 70% and 73% respectively saying that costs had risen.
MillTech can help by onboarding firms with multiple Tier-1 banks, with preferential FX rates via an intuitive, tech-enabled platform. Exposures and hedge performance can be monitored in real-time to enable fast, informed decision-making, with all post-trade processes being fully automated and integrated via APIs.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Amongst the growing number of challenges facing freight transport and logistics firms is the threat of adverse currency movements.

Thumbnail How Can Freight Transport and Logistics Firms Navigate Rising Fx Challenges

Navigating rising FX challenges in freight & logistics

The past year has been a <a title="commodities turbulence" href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">turbulent</a> period for the commodities sector. A combination of the war in Ukraine, the <a title="supply chain impact of China&rsquo;s zero-Covid policy" href="https://www.proximagroup.com/how-chinas-zero-covid-policy-is-affecting-global-supply-chains/#:~:text=When%20Chinese%20manufacturing%20cities%20come,confusion%20right%20across%20the%20market." target="_blank" rel="noopener">supply chain impact of China&rsquo;s zero-Covid policy</a> and <a title="high global inflation" href="https://www.imf.org/en/Blogs/Articles/2022/09/09/cotw-how-food-and-energy-are-driving-the-global-inflation-surge" target="_blank" rel="noopener">high global inflation</a> meant that <a title="volatility" href="https://www.imf.org/en/Blogs/Articles/2023/03/28/volatile-commodity-prices-reduce-growth-and-amplify-swings-in-inflation" target="_blank" rel="noopener">volatility</a> dominated commodity markets.
Spot gold, for example, is trading at its lowest level in two years, and has fallen by more than <a href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">20%</a> from its peak of above $2,000/oz in March against rising US interest rates. Similarly, Iron ore prices are at their <a title="lowest level" href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">lowest level</a> since early 2020, while prices of Aluminium are down <a href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">40%</a> since peaking in March 2022.
Market volatility has significantly heightened the exposure of many commodity firms to currency movements. Despite this, many CFOs at commodities firms may have traditionally seen foreign exchange (FX) as second order; they transact in FX not because they &lsquo;want to&rsquo;, but because they &lsquo;have to&rsquo; given the international nature of the industry.
However, with <a title="uncertainty" href="https://www.imf.org/en/Blogs/Articles/2023/01/26/global-economic-uncertainty-remains-elevated-weighing-on-growth" target="_blank" rel="noopener">uncertainty</a> set to persist throughout 2023, we believe commodity firms should implement effective risk management strategies against these threats.
&nbsp;
<h2>FX and commodities: what are the challenges?</h2>
There are several factors that heighten the FX risk of trading commodities. These include:
<ul>
<li>Location basis risk&nbsp;&ndash; Location basis risk arises when the underlying asset is in a different location from the where the futures contract is traded. This is especially prevalent in commodities which must be physically transported to where they will be used and safely held in a storage facility. For example, a natural gas producer in Texas holds locational basis risk if it decides to hedge its price risk with contracts deliverable in California. If the Texas contracts are trading at $2.90 per one million British Thermal Units (MMBtu) and the California contracts are trading at $3.10/MMBtu, the locational basis risk is $0.20/MMBtu.</li>
<li>Supply and demand -&nbsp;Unlike other asset classes such as stocks or bonds which are stored electronically, commodities are physical assets which are transported from where they are produced to where they are used. This makes them highly susceptible to supply chain disruption which can cause strong price fluctuations. For instance, China is one of the main global drivers behind&nbsp;<a title="iron ore demand" href="https://www.institutionalinvestor.com/article/b1ysny0417gs5d/chinas-challenge-with-iron-ore" target="_blank" rel="noopener">iron ore demand</a>, but its zero Covid-policy has significantly reduced imports, causing&nbsp;<a title="prices to fall" href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">prices to fall</a>.</li>
<li>Climate / weather -&nbsp;Commodities come from natural resources, meaning the weather and climate can affect their production and transportation, which has a knock-on effect on prices. A clear example of this is the&nbsp;<a title="Texas power grid failure of 2021" href="https://www.texastribune.org/2022/02/15/texas-power-grid-winter-storm-2021/" target="_blank" rel="noopener">Texas power grid failure of 2021</a>; when a winter storm broke the system, spot natural gas prices jumped by roughly&nbsp;<a href="https://fortune.com/2021/07/09/gas-sellers-made-11-billion-texas-winter-blackout/" target="_blank" rel="noopener">100 times</a>&nbsp;their regular levels.</li>
</ul>
&nbsp;
<h2>How can commodities firms enhance FX risk management?</h2>
Fortunately, there are a number of steps that these firms can take to mitigate the impact of currency movements. These include:
1. Compare the market - Having the ability to put trades up for competition is central to ensuring access to the best price, which is key to effective risk management. However, many commodity firms may be hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements. New technology-driven solutions are tackling this problem, enabling commodity companies to access rates from multiple banks whilst reducing the operational burden associated with this kind of market access.
2. Use of Transaction Cost Analysis (TCA) - <a title="Transaction Cost Analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA</a> was specifically created to highlight hidden costs and enables commodity firms to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.
3. Outsourcing - There is a growing recognition that outsourcing does not necessarily mean less transparency or reduced quality of FX activities, and when using the right partner, firms can improve transparency and execution quality. Outsourcing can enable commodity firms to dedicate more time to core business matters, which is all the more important in the current volatile climate.
4. Strong governance &ndash; Since commodities must be stored and transported physically, the market holds a high level of operational complexity and risk. Commodity purchasing managers must take into account the scheduling, tracking and settling of purchases, in addition to monitoring transportation and logistical movements. It is therefore difficult to maintain transparency due to the number of different steps in this process. Harnessing solutions which can strengthen governance will help many commodity firms improve the cost, quality and transparency of their FX execution.
<h3>&nbsp;</h3>
<h2>How MillTech can help</h2>
With currency movements set to <a title="remain volatile over the next year" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">remain volatile over the next year</a>, we believe it is vital that commodity firms get the right tools and processes in place to protect their bottom lines against this threat.
MillTech&rsquo;s market access, pricing power and operational resource enables it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for commodity firms.
We provide access to a <a title="transparent fx marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing unique and significant pricing efficiency for our clients. Rather than spending months setting up multiple FX facilities with different counterparties, commodity firms can sign up and often begin transacting within weeks.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;with us to find out more about how we can help you navigate your FX challenges in 2023.

With uncertainty set to persist throughout 2023, we believe commodity firms should implement fx risk management strategies...

Thumbnail Blog Comodities

Why commodity firms should prioritise FX risk management

Best execution is one of the most commonly used terms across financial markets. Many believe that it just refers to pricing, but as recent events in the banking industry demonstrate, there are other important considerations that you shouldn&rsquo;t take for granted.
When assessing the overall FX execution quality and execution governance in the context of best execution, it is important to consider a wide range of execution factors to determine the optimal execution arrangements that can help a firm achieve a best execution on a continuous basis.
<ul>
<li><a href="#importanceofpricinginfx">Importance of pricing in FX</a></li>
<li><a href="#FXCounterpartyRiskAssessmentFrameworkFX">Counterparty Risk Assessment Framework</a></li>
<li><a href="#Executioncontingencyplan">Execution contingency plan</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="importanceofpricinginfx">Importance of pricing in FX</h2>
It is widely known that execution prices and costs are probably the most important execution factors in a normal market environment.
We believe firms should seek to achieve competitive execution prices and transparent cost structure. They can do this by adopting a <a title="multi-bank FX execution platform" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX execution platform</a> where multiple liquidity providers are competing to provide exchanges rates. This enables them to transparently compare and execute FX rates from multiple providers. The execution prices and costs can be accessed and monitored via an independent <a title="Transaction Cost Analysis (TCA)" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction Cost Analysis (TCA)</a> to demonstrate best execution.
&nbsp;
<h2 id="FXCounterpartyRiskAssessmentFrameworkFX">FX counterparty Risk Assessment Framework</h2>
However, as the recent events with Silicon Valley Bank and Credit Suisse illustrate, other execution factors beyond pricing and costs can play a significant role.
For instance, the likelihood of settlement typically becomes the crucial execution factor when counterparty risk dominates the market.&nbsp; As a result, selecting and performing appropriate due diligence on counterparties become an integral part of the best execution.
Firms should consider establishing a robust counterparty risk evaluation framework that considers of a range of risk factors, including:
<ul>
<li>Monitoring realised and unrealised profit and loss (P&amp;L) for each counterparty</li>
<li>Credit rating from reputable rating agencies</li>
<li>Credit default swaps</li>
<li>Regular counterparty review and monitoring activities.</li>
</ul>
&nbsp;
<a title="Request a free TCA here" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
&nbsp;
<h2 id="Executioncontingencyplan">Execution contingency plan</h2>
In addition to reviewing and assessing the counterparty risks, the recent banking crisis events also highlight the importance of establishing a robust FX execution contingency plan that takes into account of legal and operational complexities.
If the counterparty becomes unavailable, the firm should be able to quickly and efficiently manage the existing FX trades by way of:
<ul>
<li>Novation - replacing an agreement in place with consent of all parties involved</li>
<li>Close-out - termination of the transaction</li>
<li>Implement Net Present Value (NPV) any future profits</li>
</ul>
Once existing trades have been managed, firms can then implement new FX trades as required by the business.
&nbsp;
<h3>How MillTech can Help</h3>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay,
Our multi-bank market not only can help firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements, but also significantly reduces counterparty risks. This is because we offer multiple arrangements with tier one banks (if available) within a rigorous MillTech counterparty onboarding and monitoring framework
We provide access to a <a title="transparent marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 tier-one counterparty banks, while harnessing a unique and significant pricing efficiency for our clients In addition, MillTech provides clients with full transparency of execution via independent TCA reporting.
Get in touch today to&nbsp;<a title="contact page" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">find out more</a>.

Best execution is one of the most commonly used terms across financial markets. Many believe that it just refers to pricing...

Justing

Best execution: Beyond competitive pricing and transparency

Against a backdrop of <a title="high inflation" href="https://www.imf.org/en/Blogs/Articles/2022/09/09/cotw-how-food-and-energy-are-driving-the-global-inflation-surge" target="_blank" rel="noopener">high inflation</a>, <a title="currency volatility" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">currency volatility</a> and <a title="well-documented economic uncertainty" href="https://www.imf.org/en/Blogs/Articles/2023/01/26/global-economic-uncertainty-remains-elevated-weighing-on-growth" target="_blank" rel="noopener">well-documented economic uncertainty</a>, we believe private equity firms should prioritise FX risk management to improve performance, deliver sustainable growth and, ultimately, protect their returns.
Despite the rising importance of FX for private equity firms, many suffer from a lack of transparency across fees, as well as barriers to best execution due to improper infrastructure and cumbersome legacy processes.
Here are some of the top challenges that private equity firms face when it comes to managing their FX risk:
<ul>
<li><a href="#MaintainingtransparencyofFXcosts">Maintaining transparency of FX costs</a></li>
<li><a href="#ManagingFXcosts"> Managing FX costs</a></li>
<li><a href="#MonitoringFXcosts">Monitoring FX costs</a></li>
</ul>
 
<h2>&nbsp;</h2>
<h2 id="MaintainingtransparencyofFXcosts">1. Maintaining transparency of FX costs</h2>
Fund managers may often be spoiled for choice when weighing up service providers such as banking partners, subscription line lenders and fund administrators, meaning decisions are often made on fine margins.
Unnecessary costs should be avoided because investors expect that every single pound, euro or dollar generates a return and partners are aiming to surpass their performance hurdle.
Both investors and partners have significant skin in the game, so when they kick the tyres and look under the bonnet of the finance function, they might expect a rigorous audit trail of how costs are being managed and objective decisions are made.
This seems straightforward enough, but it turns out but it turns out that less than <a title="30%" href="https://thevx.io/campaign/grey-costs-of-fx/" target="_blank" rel="noopener">30%</a> of investors have a view of their total FX costs.
<a title="Request a free TCA" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
&nbsp;
<h2 id="ManagingFXcosts">2. Managing FX costs</h2>
Private equity firms have a fiduciary responsibility to pursue best execution for their clients, so we believe they should have <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multiple FX counterparties</a> at their disposal every time they enter the market to execute a trade.
As well as having multiple FX providers, fund managers might also want to consider if the financial stability and credit ratings of their chosen counterparties is sufficient. When a fund manager implements an FX policy, we believe they should also consider the following:
<ul>
<li>If notional / credit thresholds are of sufficient size</li>
<li>The credit terms of the facility are in line with their liquidity profile</li>
<li>If trade tenors match their desired hedging strategy</li>
</ul>
Many CFOs and COOs can articulate their FX strategy, best performing counterparties and associated credit limits, but few may struggle to say with certainty what their costs are explicitly, and relative to what may have been agreed upfront.
FX costs are usually hidden as an all-in rate which is discounted from the mid. However, it can be hard for fund managers at private equity firms to identify where the mid is and therefore calculate what their costs are on a trade-by-trade basis.
&nbsp;
<h2 id="MonitoringFXcosts">3. Monitoring FX costs</h2>
Fund managers at private equity firms can always check what they&rsquo;re being charged on FX transactions by conducting regular&nbsp;<a href="https://milltechfx.com/product/transaction-cost-analysis/">transaction cost analysis (TCA)</a>.
TCA goes hand-in-hand with best execution and can be used as an ongoing audit of FX practices as well as hold existing FX counterparties to account.
One major goal of TCA is to gain oversight of trading costs, but additionally it helps to comply with best execution policy, regulation and strong governance expectations from investors and internal stakeholders.
Private equity firms can implement TCA as part of a broader process of monitoring FX costs which includes:
<ul>
<li>Finding FX counterparties that can meet your requirements</li>
<li>Comparing pricing on a trade-by-trade basis</li>
<li>Capturing trade data for regular, post-execution cost analysis i.e. TCA</li>
</ul>
However, these straightforward steps are often overlooked.
A recent survey titled <a title="&lsquo;The Grey Costs of FX&rsquo;" href="https://thevx.io/campaign/grey-costs-of-fx/" target="_blank" rel="noopener">&lsquo;The Grey Costs of FX&rsquo;</a> drew feedback from various FX industry specialists &ndash; 45% were investors, 25% asset owners and 20% either banks or brokers. It found that 39% of the industry is not tracking any TCA for FX.
This is because many private equity firms may still use manual processes to compare pricing, execute trades, and reconcile trade information - namely trade timestamps - which are sometimes not reported accurately by their FX counterparties.
Moreover, for many fund managers at private equity firms, FX is a non-core business activity. This means they commonly get set up with a handful of FX counterparties, with the hope that increased competition bypasses the need to agree upfront costs and monitor them on an ongoing basis.
&nbsp;
<h2>How MillTech can help</h2>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay.&nbsp;Our FX-as-a-Service model helps private equity firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a> today to find out more, or you can request your free TCA report <a href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener">here</a>.

Against a backdrop of high inflation and currency volatility, we believe private equity firms should prioritise FX risk management.

What Are The Fx Challenges for Private Equity Firms

How Private Equity firms are tackling FX risk

The insurance industry has gone through a period of significant change over the past twelve months. Against a backdrop of <a title="rising inflation" href="https://www.cnbc.com/2022/11/16/uk-inflation-hits-new-41-year-high-as-food-and-energy-prices-continue-to-soar.html" target="_blank" rel="noopener">rising inflation</a>, <a title="ongoing supply bottlenecks" href="https://think.ing.com/articles/supply-chain-pressure-to-persist-through-2022/" target="_blank" rel="noopener">ongoing supply bottlenecks</a>, <a title="geo-political conflict" href="https://www.brinknews.com/how-the-russia-ukraine-conflict-is-impacting-industries/" target="_blank" rel="noopener">geo-political conflict</a> and <a title="climate-induced disruption" href="https://www.reuters.com/business/finance/climate-change-is-hurting-insurers-report-2022-05-17/" target="_blank" rel="noopener">climate-induced disruption</a>, <a title="insurance firms have had to adjust their operational practices" href="https://www2.deloitte.com/cn/en/pages/financial-services/articles/financial-services-industry-outlooks-2022/insurance-industry-outlook.html" target="_blank" rel="noopener">insurance firms have had to adjust their operational practices</a> to meet the demands of this challenging environment.
Amongst the growing number of challenges facing insurers is the task of foreign exchange (FX) risk management. Insurance firms are in fact responsible for a significant amount of FX trading. The 2022 <a title="BIS Triennial Bank Survey" href="https://www.bis.org/statistics/rpfx22_fx.htm" target="_blank" rel="noopener">BIS Triennial Bank Survey</a> found that &lsquo;other financial institutions&rsquo; such as insurance companies were responsible for $3.6 trillion in trading volumes, representing 48% of global turnover.
Despite this, insurance companies typically transact in FX not because they want to, but because they have to, given their global coverage and the subsequent requirement to pay out claims in different currencies.
However, with the market facing headwinds across a range of different fronts, it is vital that insurance companies have effective FX risk management strategies in place to mitigate the impact of currency exposures and an increasingly uncertain trading environment.
&nbsp;
<h2>What are the FX challenges for insurers?</h2>
The past year has thrown up a host of new challenges for the insurance market, with the industry facing a variety of pressure points and risk factors. These include:
<ul>
<li>Inflationary pressures &ndash; Inflation has become a dominant economic trend, at times reaching 40-year highs across the <a title="UK inflation" href="https://www.cnbc.com/2022/11/16/uk-inflation-hits-new-41-year-high-as-food-and-energy-prices-continue-to-soar.html" target="_blank" rel="noopener">UK</a> and <a title="US inflation" href="https://www.bloomberg.com/news/articles/2022-10-13/core-us-inflation-rises-to-40-year-high-securing-big-fed-hike?sref=ix7Z3iHU" target="_blank" rel="noopener">US</a>. The cost of insurance claims and premiums has risen in line with inflation, meaning claims inflation and increased operating costs are now a real issue for underwriters.</li>
<li>Supply chain disruption &ndash; Manufacturers continue to struggle to meet post-pandemic demand, with major trade hubs such as <a title="US ports" href="https://www.wsj.com/articles/warehouse-bottlenecks-are-snarling-u-s-supply-chains-11661529092" target="_blank" rel="noopener">US ports</a> being clogged up by bottlenecks due to a lack of staffing and equipment. A potential knock-on effect of backlogs and delays is longer interruption periods, which may put business interruption indemnity periods and sums insured under increasing strain.</li>
<li>Catastrophe pay outs &ndash; Natural disasters caused an estimated global insured losses of <a title="$130 billion in 2022" href="https://www.insurancejournal.com/news/international/2023/01/26/704675.htm" target="_blank" rel="noopener">$130 billion in 2022</a> &ndash; up from <a title="$112 billion in 2021" href="https://www.swissre.com/media/press-release/nr-20211214-sigma-full-year-2021-preliminary-natcat-loss-estimates.html" target="_blank" rel="noopener">$112 billion in 2021</a>. And if the summer of 2022 taught us anything, it is that global warming and subsequent extreme weather are here to stay. As this trend continues, catastrophe pay outs are also likely to carry on rising.</li>
</ul>
Furthermore, when an insurance company <a title="receives new premiums" href="https://www.riksbank.se/globalassets/media/rapporter/fsr/fordjupningar/engelska/2020/200520/the-interconnectedness-of-insurance-companies-national-pension-insurance-funds-and-banks-via-the-foreign-exchange-market-article-financial-stability-report-2020_1.pdf" target="_blank" rel="noopener">receives new premiums</a> that it wishes to invest in foreign assets, it tends to enter into a foreign exchange swap if it wishes to reduce the exchange rate risk this investment will entail. This, combined with the aforementioned factors, is heightening the exposure of insurance firms to FX risk.
&nbsp;
<h2>How can insurers improve their FX risk management strategies?</h2>
With <a title="FX volatility" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">FX volatility</a> set to persist throughout the year ahead, we believe insurance companies must consider implementing a robust risk-management strategy to minimise their exposure to foreign currency movements.
Fortunately, there are a number of steps that insurers can take to achieve this:
1. The use of Transaction Cost Analysis (<a title="TCA" href="https://milltechfx.com/resources/glossary/transaction-cost-analysis-tca" target="_blank" rel="noopener">TCA</a>) &ndash; TCA was specifically created to highlight hidden costs and enables insurers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.
2. Compare the market - having the ability to put trades up for competition is central to ensuring access to the best price &ndash; which is key to effective risk management. However, many insurance firms are hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements. A new generation of fintechs is tackling this problem, enabling insurers to access rates from multiple banks whilst reducing the operational burden associated with this kind of market access.
3. Outsourcing - There is a growing recognition that outsourcing does not necessarily mean less transparency or reduced quality of FX activities, but when using the right partner can improve transparency and execution quality. Outsourcing can enable insurance firms to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.
4. Strong governance - Merger and acquisition activity in the global insurance industry has increased in recent months, recently reaching the <a title="highest growth rate" href="https://www.theactuary.com/news/2022/08/24/insurance-industry-ma-deals-hit-10-year-high" target="_blank" rel="noopener">highest growth rate</a> for 10 years in the first half of 2022. It is therefore difficult to increase transparency and meet industry best practices due to each business having different partnerships and processes. To strengthen governance, insurance firms should look to FX solutions which help improve the cost, quality and transparency of their FX execution.
&nbsp;
<h2>How MillTech can help</h2>
We believe insurers should get the right processes in place now to help manage FX operations more effectively and tackle the challenges that lie ahead.
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Our FX-as-a-service model helps insurance firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
To find out more about how we can help you navigate your FX challenges, get in touch with us <a title="Contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.

Amongst the growing number of challenges facing insurers is the task of foreign exchange (FX) risk management.

How Can The Insurance Industry Adapt to Mounting Fx Challenges

How the insurance industry can tackle mounting FX challenges

The past 12 months has been a difficult period for the UK manufacturing sector. Amidst <a title="rising inflation" href="https://www.cnbc.com/2022/11/16/uk-inflation-hits-new-41-year-high-as-food-and-energy-prices-continue-to-soar.html" target="_blank" rel="noopener">rising inflation</a>, persistent <a title="supply chain problems" href="https://home.barclays/news/press-releases/2022/12/supply-chain-issues-see-uk-manufacturers-with-goods-worth-/" target="_blank" rel="noopener">supply chain problems</a> and <a title="increased red tape" href="https://www.bloomberg.com/news/articles/2022-11-16/british-businesses-give-up-on-exports-due-to-brexit-red-tape?sref=ix7Z3iHU" target="_blank" rel="noopener">increased red tape</a> as a result of Brexit, many manufacturing firms have had to constantly adjust their operations to navigate an uncertain environment.
One of the most serious, yet often overlooked challenges facing the industry is the threat of negative currency movements. Although we may not typically associate the manufacturing sector with foreign exchange (FX), FX is an essential component of the way in which many manufacturers trade and do business given the major role the industry holds in the importing and exporting of goods overseas.
Despite this, many manufacturers may traditionally see the task of FX risk management as second order. They transact in FX not because they &lsquo;want&rsquo; to, but because they &lsquo;have to&rsquo; given their international coverage.
However, with <a title="FX volatility" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">FX volatility</a> set to persist, we believe it is vital that manufacturers have effective FX risk management strategies in place to mitigate this threat.
&nbsp;
<h2>What are the FX challenges for manufacturers?</h2>
Supply chains are typically global by nature, meaning manufacturers that export and import goods to and from other countries are especially exposed to the risks associated with exchange rate fluctuations.
A sudden drop in a domestic currency will increase the cost of oversees imports, meaning the <a title="pound" href="https://www.theguardian.com/business/2022/sep/23/pound-falls-to-37-year-low-against-dollar-as-mini-budget-puts-markets-in-spin" target="_blank" rel="noopener">pound</a>&rsquo;s fall to a record low last year put serious <a title="pressure on manufacturers" href="https://www.thisismoney.co.uk/money/markets/article-11274397/Britains-factories-continue-cut-production-weaker-pound-fails-lift-exports.html#:~:text=A%20weaker%20pound%20has%20made,rising%20energy%20and%20transport%20costs." target="_blank" rel="noopener">pressure on manufacturers</a> that source components from outside of the UK. This can be especially problematic for firms that purchase large quantities of components and raw materials overseas. Automotive manufacturers, for example, on average&nbsp;<a title="buy 60% of their parts from abroad and assemble them in the UK," href="https://ukandeu.ac.uk/what-does-brexit-mean-for-the-uks-automotive-industry/" target="_blank" rel="noopener">buy 60% of their parts from abroad and assemble them in the UK,</a> meaning they run a particularly high risk of being negatively impacted by currency fluctuations.
As a result, many manufacturers that import from overseas may now be evaluating the effectiveness of their FX hedging strategies.
&nbsp;
<h2>How can manufacturers implement a strategic approach to FX risk management?</h2>
With <a title="headwinds" href="https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/manufacturing-industry-outlook.html" target="_blank" rel="noopener">headwinds</a> set to persist throughout 2023, we believe manufacturers must begin implementing a robust risk-management strategy to minimise their exposure to foreign currency movements. Fortunately, there are a number of steps that manufacturing firms can take to achieve this. These include:
1. Compare the market - having the ability to put trades up for competition is central to ensuring access to the best price, which is key to effective risk management. However, many manufacturing firms may be hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements. A new generation of FinTech businesses are tackling this problem, enabling insurers to access rates from multiple banks whilst reducing the operational burden associated with this kind of market access.
2. Use of Transaction Cost Analysis (TCA) - <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">TCA </a>was specifically created to highlight hidden costs and enables manufacturers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance
3. Outsourcing - there is a growing recognition that outsourcing does not necessarily mean less transparency or reduced quality of FX activities, but when using the right partner can improve transparency and execution quality. Outsourcing can enable manufacturers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressure.
4. Strong governance &ndash; Supply chains are complex and include several steps. These include the sourcing of raw materials, manufacturing these materials into basic parts, refining basic parts into finished products and selling finished products to end users. It is therefore difficult to increase transparency due to the number of different partnerships and processes in the trade network. Harnessing solutions which can strengthen governance will help manufacturers improve the cost, quality and transparency of their FX execution.
&nbsp;
<h3>Navigate FX with MillTech</h3>
As the manufacturing industry continues to face an <a title="uncertain landscape" href="https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/manufacturing-industry-outlook.html" target="_blank" rel="noopener">uncertain landscape</a>, we believe it is vital that manufacturers get the right tools and processes in place to protect their bottom lines against the threat of currency movements.
MillTech&rsquo;s market access, pricing power and operational resource enables it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for manufacturing firms.
We provide access to a <a title="transparent marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing unique and significant pricing efficiency for our clients. Rather than spending months setting up multiple FX facilities with different counterparties, manufacturers can sign up and often begin transacting within weeks.
<a title="Contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a> with us to find out more about how we can help you navigate your FX challenges.

Amidst rising inflation and persistent supply chain problems, many manufacturing firms have had to constantly adjust their operations.

Thumbnail Manufacturers Face Growing Fx Challenges

How manufacturers can adapt to growing FX challenges

Institutional investors often face significant currency risk exposure due to overseas investors committing to their funds or growing their portfolio in foreign markets. Fluctuations in exchange rates can affect their investment returns, which can lead to significant financial losses. In order to manage these risks, many fund managers turn to FX hedging strategies to mitigate currency risk exposure by providing protection against unfavourable currency fluctuations.
This means that fund managers can better manage their investment risks and achieve more stable returns.
In addition, by hedging their currency risk exposure, fund managers can focus on their core investment strategies, rather than worrying about currency fluctuations.
The ability to hedge foreign exchange risk without having to post collateral in the form of initial margin or variation margin offers numerous benefits to almost any type of investor.
&nbsp;
<h2>Reduced Cost</h2>
If you&rsquo;re a fund manager who hedges FX risk using products such as swaps, forwards or non-deliverable forwards, then you may have experienced first-hand a hidden cost of hedging that isn&rsquo;t often spoken about. It&rsquo;s not hidden execution spreads, service fees, forward points or even payment fees &ndash; the hidden cost is the cash drag associated with placing margin.&nbsp;
If a funds&rsquo; expected returns are 8%, then an investment of $100m should yield $108m. If 10% of investible capital is held back for margin or&nbsp;contingent liquidity, then the remaining $90m must generate a return of 20% to get to the same figure!&nbsp;
Without an unmargined FX facility, a fund manager must deposit collateral in order to enter into an FX hedge. This can be a significant amount, especially for larger trades.
Investor capital does not come cheap and if a fund manager isn&rsquo;t fully invested, then deployed capital must work even harder to hit the target returns of drawn capital.
No margin hedging allows fund managers to remain fully invested while mitigating their FX risk.
&nbsp;
<h2>Lower Risk</h2>
If FX hedging is margined, then a fund manager isn&rsquo;t necessarily reducing risk &ndash; they may just be replacing one risk with another. Sure, FX volatility is no longer a concern, but finding liquidity at short notice to settle margin calls is.&nbsp;
Over time, a fund manager might have to add more collateral to cover a growing mark-to-market position which can be costly and stressful. If the fund manager runs out of free cashflow, they might have to liquidate positions at unfavourable prices and for illiquid strategies, this isn&rsquo;t a viable&nbsp;option at short notice.&nbsp;
With no margin hedging, fund managers can better forecast future cash flows as they are not at risk of daily margin calls. They can therefore focus on the core task at hand, maximising returns.
&nbsp;
<h2>What is Stopping Fund Managers Accessing No-Margin Hedging?</h2>
So, if no margin FX hedging is such a no brainer for many fund managers, what&rsquo;s stopping them from accessing it?&nbsp;
<h3>Surveying the market</h3>
In our recent MillTech survey of 250 senior finance decision makers at fund managers, <a title="34% stated that securing credit lines was their biggest challenge when dealing with FX" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">34% stated that securing credit lines was their biggest challenge when dealing with FX</a>. It found that for 88% of fund managers, it took between 6 months and 1 year to setup their current FX infrastructure.
The first step in securing an uncollateralised hedging facility is successfully navigating the banking marketplace to find suitable partners. Different banks have differing levels of appetite for unmargined FX facilities, so it can be a daunting task knowing which bank to approach first.
Fund managers typically run lean operations and time is a scarce resource, meaning researching the market and pro-actively finding banks who will offer no margin hedging is challenging.
Even after a suitable counterparty has been engaged, the approval process for any type of credit facility can take time, and the outcome is not a foregone conclusion. This means a large amount of time and resources can be invested by a fund manager upfront and they don&rsquo;t necessarily get the desired result of a no margin facility.
&nbsp;
<h3>What about Best Execution?</h3>
Our research showed that <a title="42.8% of fund managers said that demonstrating best execution was the most challenging aspect of their FX operation" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">42.8% of fund managers said that demonstrating best execution was the most challenging aspect of their FX operation</a>. For a fund manager, satisfying best execution means having multiple FX counterparties at your disposal every time you trade.
Any fiduciary firm should consider best execution as a core component of best practice and not simply a regulatory obligation to satisfy. Pursuing best execution has other positive impacts too, notably the reduced transaction costs as a result of increased competition between counterparties.
Finding a bank that offers no-margin hedging and subsequently getting the FX facility approved and opened over the following months can be challenging enough - finding multiple banks that all offer equal terms could place a significant strain on internal resources.
&nbsp;
<h2>The Solution&nbsp;</h2>
The good news is there is new technology and solutions which provide the best of both worlds &ndash; margin-free hedging with transparent best execution which can be set up in a matter of weeks instead of months.
This simultaneously enables transparent pricing without the cash drag associated with having to fund initial and variation margin calls, thus supporting key aspects of best execution.
These solutions are available now for fund managers to access. The technology is ready, easy to onboard &ndash; and in the future, this could be applied to a wider audience. It&rsquo;s time for fund managers and other players to seize this opportunity and improve efficiency in FX, today.
&nbsp;
<h2>How MillTech can help</h2>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Our FX-as-a-Service model helps institutional investors and managers significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds. Our offering also includes an&nbsp;<a title="innovative margin-free hedging solution" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">innovative margin-free hedging solution</a> that removes the need to post initial or variation margin on FX forwards and frees up capital to increase operational efficiency without jeopardising best execution. *
To find out more about our margin-free hedging solution, get in touch with <a title="contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.
&nbsp;
*Excludes any required regulatory margin.

Institutional investors often face significant currency risk exposure due to overseas investors committing to their funds...

No Margin Hedging Fx

The Benefits of No-Margin Hedging

The foreign exchange (FX) market is one of the largest and most liquid in the world, with a daily volume of <a title="$6.6 trillion" href="https://www.bis.org/statistics/rpfx19_fx.htm" target="_blank" rel="noopener">$6.6 trillion</a>. A combination of high inflation, geo-political uncertainty and currency volatility over the past twelve months has placed the importance of having a FX strategy firmly back in the spotlight.
Despite this significant risk, many private equity (PE) firms with currency exposures have given FX policy very little consideration. However, with <a title="currency volatility" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">currency volatility</a> set to persist throughout the remainder of 2023, it is vital that PE firms are aware of how currency fluctuations may impact their returns.
Here are four key ways in which private equity firms might find themselves exposed to FX risk:
<ul>
<li><a href="#foreigncurrencyassets">Foreign currency assets</a></li>
<li><a href="#impactofFXratemovements">Impact of FX rate movements on management fees</a></li>
<li><a href="#investorcapital">Investor Capital</a></li>
<li><a href="#fxexposure">Indirect, portfolio level FX exposure</a></li>
</ul>
&nbsp;
 
<h2 id="foreigncurrencyassets">1. Foreign currency assets&nbsp;</h2>
&nbsp;The more jurisdictions a PE managers&rsquo; strategy allows for, the greater the number of investment opportunities. But, given that annual movements in even <a title="G10 currency pairs" href="https://thefullfx.com/fx-volatility-remains-high-after-event-driven-2022-bofa/" target="_blank" rel="noopener">G10 currency pairs</a> can be significant, FX rate movements have the potential to erode long-term value creation efforts or create complications pre-acquisition and pre-disposal.
PE managers commonly implement short-dated hedging to lock in rates during the purchase or sale of an asset, whilst others may even consider hedging asset value throughout the entire hold period.
&nbsp;
<h2 id="impactofFXratemovements">2.&nbsp;Impact of FX rate movements on management fees</h2>
It is not uncommon to see PE managers raise a fund in one currency but have offices outside the jurisdiction of their fund&rsquo;s base currency.
This means the PE manager receives their management fees in one currency but then has to pay for certain fixed costs, such as salaries and offices, in one or potentially multiple different currencies.
FX rate movements can place a greater strain on management fee income and for that reason PE managers commonly look to lock in exchange rates on expected fee income for as long as possible.
<a title="Request a free TCA here" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
&nbsp;
<h2 id="investorcapital">3. Investor Capital</h2>
As a PE manager matures, it becomes increasingly likely that they may see foreign currency investors commit capital to their funds. Some managers may take the stance of letting their investors manage their own FX risk, whilst others may implement share class hedging.
Share class hedging mitigates FX risk when investors are considering which funds to commit to and, in that way, can be a useful tool for managers to broaden their investor base and make their funds more marketable overseas. 
&nbsp;
<h2 id="fxexposure">4. Indirect, portfolio level FX exposure</h2>
As a PE manager grows its portfolio, their investment team may have to overhaul how their portfolio businesses manage their FX exposure.
Our own 2023 fund managers FX survey found that 80% of UK and 82% of EU fund managers have looked to diversify FX counterparties since the recent banking crisis, with 87% of those in the EU exploring new technology and platforms to automate their FX operations.
<img src="https://directus.corp.milltechfx.com/assets/164609be-05c3-4726-8a3e-29d3f7b0b4c8" alt="Have you looked to diversify FX counterparties since the recent banking crisis?" width="462" height="350">
A PE firm may look to align their own set-up and processes with those of their underlying portfolio and hold them to the same high governance standards.
&nbsp;
<h3>How MillTech can help</h3>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Our multi-bank market helps private equity firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.&nbsp;&nbsp;
We provide access to a <a title="transparent fx marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing a unique and significant pricing efficiency for our clients.
Get in touch today to&nbsp;<a title="Contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">find out more</a>.

Despite this significant risk, many private equity (PE) firms with currency exposures have given FX policy very little consideration.

Why Is Fx Important for Private Equity

Why FX matters for Private Equity firms

Against a backdrop of <a title="high inflation" href="https://www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022" target="_blank" rel="noopener">high inflation</a>, <a title="ongoing supply chain problems" href="https://kpmg.com/xx/en/home/insights/2021/12/six-key-trends-impacting-global-supply-chains-in-2022.html" target="_blank" rel="noopener">ongoing supply chain problems</a> and <a title="rising currency volatility" href="https://thefullfx.com/fx-volatility-remains-high-after-event-driven-2022-bofa/" target="_blank" rel="noopener">rising currency volatility</a>, corporates have navigated an increasingly difficult landscape over the past twelve months.
These challenges have placed many firms across all sorts of sectors under mounting pressure, and the lessons that businesses learn in stormy seas will often sharpen the focus on how a company&rsquo;s finance function could evolve during calmer waters.
With several treasurers setting their plans in motion for 2023 and beyond, here we look at how choosing the right foreign exchange (FX) partner can help achieve what many CFOs consider their key strategic priorities.
&nbsp;
<h2>Navigating an uncertain landscape</h2>
The past few years have shown, if anything, the importance of planning for improbable outcomes. Geopolitical events like the invasion of Ukraine, or central bank policy such as rising interest rates, can have a huge impact on currency markets.
If a business finds itself on the wrong side of an FX market move whilst unhedged, it can lead to significant losses.
Despite that, some CFOs still adopt a &lsquo;wait and see&rsquo; approach when it comes to currency markets and try to hold out covering their FX exposures until market conditions are more favourable.
This approach, however, holds significant risk in the current volatile landscape. According to <a title="Kyriba&rsquo;s January 2023 currency impact report" href="https://info.kyriba.com/Kyribas-January-2023-Currency-Impact-Report-sm" target="_blank" rel="noopener">Kyriba&rsquo;s January 2023 currency impact report</a>, currency movements cost North American companies $43.15 billion between July to September 2022 &mdash; an all-time high since data tracking started a decade ago.
IBM has become the latest big name to highlight the need for an effective hedging strategy, recently reporting that the US dollar&rsquo;s surge towards the end of last year hurt its revenue by more than&nbsp;<a title="$1 billion" href="https://www.wsj.com/articles/ibm-q4-earnings-report-2022-11674682284?mod=article_inline" target="_blank" rel="noopener">$1 billion</a> in Q4 2022.
CFOs should aim to ensure they are managing known risks when they can and do away with opportunistic hedging so bottom lines aren&rsquo;t left exposed to FX market volatility.
&nbsp;
<h2>Liquidity Management</h2>
In tough times liquidity is precious, whether that&rsquo;s a company's own funds or maintaining sufficient headroom on working capital facilities. According to <a title="Deloitte&rsquo;s 2022 Global Treasurer survey" href="https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-deloitte-global-treasury-survey-2022.pdf" target="_blank" rel="noopener">Deloitte&rsquo;s 2022 Global Treasurer survey</a>, enhancing liquidity risk management is a critical priority for over half of all CFOs.
We believe businesses should explore ways to eliminate unforeseen demands on free cash flow, and one such demand might arise from managing FX risk.
For example, corporates may have to post collateral against FX hedges in the form of initial or variation margin. After posting cash collateral with an FX counterparty this capital is essentially dormant; it isn&rsquo;t earning a return for the company and can&rsquo;t be accessed at times when they might need it most.
CFOs should therefore consider seeking hedging solutions that are margin free and don&rsquo;t pose a threat to cash flow.
&nbsp;
<h2>Automation and outsourcing </h2>
Inadequate treasury systems infrastructure is one of the <a title="top three challenges" href="https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-deloitte-global-treasury-survey-2022.pdf" target="_blank" rel="noopener">top three challenges</a> faced by many Treasury teams today. This is particularly prominent in FX. According to our <a title="2022 CFO FX survey" href="https://milltechfx.com/resources/blog/the-intensifying-fx-challenges-for-corporates-the-milltechfx-2022-survey/" target="_blank" rel="noopener">2022 CFO FX survey</a>, nearly two-thirds (65%) of corporates use manual execution processes, with over a third rating their FX set up as below average or worst in class.
It&rsquo;s therefore easy to see why <a title="89%" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">89%</a> of senior-finance decision makers now looking into new technology and platforms to automate their FX operations.
Unlike manual processes, these solutions can streamline the end-to-end workflow, heighten transparency and enable many firms to get the best possible rates.
CFOs can even look to fully outsource their FX requirement. According to&nbsp;<a title="HSBC and Acuris reports" href="https://www.gbm.hsbc.com/en-gb/campaigns/rethinking-treasury-survey-2021?utm_content=187570063&amp;utm_medium=social&amp;utm_source=linkedin&amp;hss_channel=lcp-19171726" target="_blank" rel="noopener">HSBC and Acuris</a>, 44% of CFOs in larger companies (with revenues over $5bn)&nbsp;have outsourced some of their day-to-day functions.
Harnessing external solutions may:
<ul>
<li>ease the administrative burden of onboarding new FX counterparties</li>
<li>centralising price discovery</li>
<li>navigating the post-execution phase, whilst also freeing up resources for more effective use elsewhere.</li>
</ul>
The end product is also more likely to be of higher quality, leading to improved execution.&nbsp;
&nbsp;
<h2>ESG</h2>
According to <a title="EY" href="https://www.ey.com/en_gl/assurance/how-can-corporate-reporting-bridge-the-esg-trust-gap" target="_blank" rel="noopener">EY</a>, more than three-quarters of investors think that companies should make investments that address ESG issues relevant to their business, even if it reduces profits in the short term.
Similarly, <a title="60%" href="https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-deloitte-global-treasury-survey-2022.pdf" target="_blank" rel="noopener">60%</a> of corporate treasurers believe that ESG criteria will have a significant impact on treasury organisations and processes.
ESG-linked FX derivatives are in their infancy, with only a handful of examples cited in <a title="ISDA&rsquo;s 2021 report" href="https://www.isda.org/a/qRpTE/Overview-of-ESG-related-Derivatives-Products-and-Transactions.pdf" target="_blank" rel="noopener">ISDA&rsquo;s 2021 report</a> &lsquo;Overview of ESG-related derivatives, products and transactions&rsquo;. However, we believe CFOs should expect these kinds of structures to become more common.
Before ESG-linked derivatives go mainstream, CFOs might want to explore forming relationships with banks, and other service providers, that are aligned with their company&rsquo;s own ESG priorities.
&nbsp;
<h2>Forming the right relationships</h2>
Bank relationship management is central to many businesses achieving their goals.
Despite this, <a title="over half of treasurers" href="https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-deloitte-global-treasury-survey-2022.pdf" target="_blank" rel="noopener">over half of treasurers</a> still use spreadsheets for their bank relationship management, with no system in place to enhance the ease and efficiency of this process.
This may increase the complexity and difficulty of managing bank relationships.
CFOs clearly must consider how their external relationships can help them manage FX risk more effectively, but historically this might have meant bringing more banks into the mix rather than fewer.
Utilising multibank execution solutions that offer all the competitive benefits of more banking relationships, without the operational drag, can enable treasurers to gain a clearer view of the market and ensure they are executing at the best possible rate.
&nbsp;
<h2>How MillTech can help</h2>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay.&nbsp;Our <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FX-as-a-Service</a> model helps corporates and global businesses significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an <a title="marketplace fx solution" href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end solution</a>, from onboarding with up to 15 counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;with us to find out more about how we can help you navigate your FX challenges in 2023.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How choosing the right foreign exchange (FX) partner can help achieve what many CFOs consider their key strategic priorities.

The Corporate Treasurers Checklist 2023

The Corporate Treasurer’s FX risk management checklist

Norbert Torok

Modularisation is a confusing word. It&rsquo;s used in lots of different industries, like automotive, construction and manufacturing. But what does modularisation mean in software development? I lead the front-end development team at MillTech, so I&rsquo;m particularly interested in what modularisation means for front-end applications, like our customer portal.
Well, it&rsquo;s just like Lego. I love Lego, it&rsquo;s simple and fun, the possibilities of what you can do are endless, and for me personally, it&rsquo;s a little bit of nostalgia as well. But what I really like about Lego is that you can create an infinite number of toys. You can also build things, that later become a piece of something much bigger. It's modular and reusable.
<h3>Why modularise our customer portal?</h3>
Well, consider this: you are playing with a friend, and you want to build something out of Lego. You have a great idea of something you want to change to make it better. But each time you try to make a change to this awesome Lego build, your friend must check each block to make sure everything still works and looks the same. Let&rsquo;s just say that this will be a very dull game.
The dull game
<img src="https://directus.corp.milltechfx.com/assets/5ec90c0a-f982-495f-84b9-960d63c58276" alt="The dull game - MillTechFX" width="344" height="108" />
To make this a more enjoyable and pleasant game, we could group the Lego blocks by colour. This way we save some time because our friend doesn&rsquo;t have to check all the blocks again and again, they only need to check the colour group where I made the change.
The not-so-dull game
<img src="https://directus.corp.milltechfx.com/assets/8b37d83b-bfff-4358-8ae8-2b26872c17be" alt="The not-so-dull game" width="355" height="113" />
So, in this case, if I change something in the red block group and everything else stays the same, if we check only the red group, it should be fine. Also, while our friend checks the red group I could make some changes to the green block group, and this way none of us is bored, we use the time efficiently. And when we both are happy, we could just put the blocks together.
<img src="https://directus.corp.milltechfx.com/assets/a2338071-7847-4e35-bc4a-87667710265a" alt="front-end Lego MillTechFX" width="346" height="100" />
A front-end application works the same way. We build our application block by block, component by component. We create a component like a button and reuse it, everywhere we need a button.
As our front-end application grew it started to behave like the Lego game I described earlier. If we wanted to make a change to a page, the whole application had to be rebuilt, and therefore the whole application needed to be re-tested. This was a lot of effort from our QA friends, a dull game to play, and ultimately slowed us down delivering new functionality to our clients.
Our plan was to break our front-end application into separate modules for each page of the application. By doing this we hoped to:
&nbsp; 1. Help QAs visualise what modules were affected by code changes so they can regression test only the affected modules
&nbsp; 2. Remove unnecessary builds for unaffected modules &ndash; there is no point rebuilding a page if it had no changes
&nbsp; 3. Make the codebase cleaner, easier to work with and scalable
<h3>How did we modularise our customer portal?</h3>
Before the refactor, we had the whole application as a single module. The diagram below gives a rough idea of the application architecture. Changing one line of code in a component, for example, forced us to rebuild the whole application.
One application as a module
<img src="https://directus.corp.milltechfx.com/assets/243a7b40-3b9a-4e57-b418-953244f204b1" alt="One application as a module - MillTechFX" width="355" height="174" />
What we aimed for instead, was a structure organised into three stages, App, Modules and Shared modules. The most important are the last two because the app is just the entry point of the application. Each module is a page of the app, and every single one of these pages has its own types, helpers, components, styles, etc. These are being used only by that module/page.
Application is broken into modules and shared modules - each module is a page
<img src="https://directus.corp.milltechfx.com/assets/ed47c318-b613-46f2-87e0-3c797276654e" alt="Application is broken into modules and shared modules - each module is a page" width="355" height="165" />
The rule we followed was simple. From the moment a helper, component, type, style etc, is used in more than one page/module, it should go in a shared module. This shared module is then used by more than one page, and it becomes a dependency of those pages. If something is used in both applications it goes into our libraries (which is also a module), and that library will be a dependency of the application as well. After creating all these new modules, and reorganising everything with the team, we ended up with 52 modules in our repository.
The tool we used is called <a href="https://nx.dev/" target="_blank" rel="noopener">NX</a>, a build system for mono repositories. If you are already using <a href="https://lerna.js.org/" target="_blank" rel="noopener">Lerna</a>, NX is simple to add on top and they work very well together. One of the most important reasons for choosing NX is because they do build caching. Meaning that each module is built separately and cached. If the content of that module changes, it will be rebuilt again. But only the modules where we made code changes will be rebuilt, everything else will be reused from the cache. This helped us a lot, and NXs <a href="https://nx.dev/nx/affected" target="_blank" rel="noopener">affected</a> command **helpfully highlight what are the affected/changed modules.
The affected command shows us the modules affected by the change
<img src="https://directus.corp.milltechfx.com/assets/cddf74f9-befa-4ec1-a912-a54c8a9bd37c" alt="affected command MillTechFX" width="355" height="165" />
Doing this means that if I make a change to a helper, for example, I will see that the helper's shared module changed. It&rsquo;s like in our Lego game, we don&rsquo;t want our friend to check everything, again and again, to make sure it looks and works correctly, it&rsquo;s enough to check only the changed/affected modules.
<h3>What we found</h3>
By the end of the refactoring we had 52 modules.
Our 1st goal was to help QAs visualise what modules were affected by code changes so they can regression test only the affected modules. This we achieved.
Our 2nd goal was to reduce the build time by building only the affected modules. If we calculate how much time a developer spends on average building the apps before and after the modularisation.
<img src="https://directus.corp.milltechfx.com/assets/12a801dd-30b3-4a9f-b953-64d4043b52e5" alt="Table Lego x MillTechFX blog" width="355" height="164" />
(Nr. local builds + nr. CI builds) * min/build
Before:&nbsp;(5 + 2) * 8 = 56 min per developer per day
After: (0 + 2) * 4 = 8 min per developer per day
48 mins per developer per day is a big productivity gain for the team 👏
Our 3rd goal was to have a clean, easy-to-work-with codebase that is scalable. Whilst too early to say conclusively, I have a good feeling about this too. One additional bonus is the work here sets us up well to explore a micro front-end approach in the future. The team put in a big effort, and we are already seeing the benefits.

Modularisation is a confusing word. It’s used in lots of different industries, like automotive, construction and manufacturing. But what does modularisation mean in software development?

Norbert1   

How we built our modular front-end using a Lego approach

<a title="Volatility" href="https://www.bis.org/publ/qtrpdf/r_qt2212f.htm" target="_blank" rel="noopener">Volatility</a> has dominated the foreign exchange (FX) market over the past twelve months. According to&nbsp;<a title="Kyriba&rsquo;s October Currency Impact Report" href="https://www.kyriba.com/news/kyribas-currency-impact-report-fx-impacts-rock-multinationals-to-record-breaking-49-billion/" target="_blank" rel="noopener">Kyriba&rsquo;s October Currency Impact Report</a>, firms in Europe and North America reported $37.27 billion in currency headwinds in the second quarter of 2022 alone.
The pressure on corporates, a segment of the market that has traditionally struggled with their FX set up, intensified in this new environment. As a result, many are reviewing their <a title="FX processes" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">FX processes</a> to add in a layer of agility and flexibility so they can readily navigate this increasingly volatile climate.
With many treasurers now planning for the year ahead, here are three key FX trends that we believe are likely to affect the way in which corporates manage their currency exposures in 2023.
 
<h3>Changing face of FX hedging</h3>
The task of FX risk management has for many firms gone from second order to a rapidly rising priority. Our 2022 CFO FX survey found that <a title="89%" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">89%</a> of corporates that do not have a formal hedging programme in place now considering introducing one.
Firms are adapting their hedging strategies to protect themselves against rising volatility and uncertainty in the market. During calmer pre-Covid-19 times, some corporates moved towards more exotic products. In recent months, many have reverted to more&nbsp;<a title="straightforward linear products such as forwards" href="https://www.euromoney.com/article/2arucgjq1osrxw0snyjuo/treasury/corporates-hedge-their-bets-as-market-volatility-surges" target="_blank" rel="noopener">straightforward linear products such as forwards</a>&nbsp;which are considered to be more liquid and easier for corporates to unwind should the market move against them.
Shorter hedging lengths can allow corporates to have flexibility to adapt to the changing market rather than locking in a rate for a long time, enabling firms to adjust their exposure if they need to.
Whilst there will be always be some firms that don&rsquo;t hedge their FX risk at all, we should expect those that previously didn&rsquo;t to begin doing so. Given the potential for the <a href="https://www.fxstreet.com/news/usd-is-likely-to-weaken-further-in-2023-after-a-choppy-end-in-2022-hsbc-202301111510#:~:text=Woody%20Johnson-,USD%20is%20likely%20to%20weaken%20further%20in%202023,choppy%20end%20in%202022%20%E2%80%93%20HSBC&amp;text=The%20broad%20US%20Dollar%20tore,for%20USD%20weakness%20in%202023.">&nbsp;</a>, this could be important for US firms who may have a stronger incentive to implement more stringent hedging strategies in 2023.
<h3> Automation</h3>
For many corporates, FX processes are manual, cumbersome and time-consuming. Nearly <a title="two-thirds (65%)" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">two-thirds (65%)</a> use manual execution processes and over a <a title="third (36%)" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">third (36%)</a> still primarily use email for instructing financial transactions, while <a title="29%" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">29%</a> rely on phone calls.
FX price discovery can often involve multiple phone calls, e-mails or online platforms to log in just to get comparative quotes from counterparties.
This entire process can be a huge drain on time and resources. Corporate treasury teams spend around <a title="1.85 days" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">1.85 days</a> per week on FX-related matters, while <a title="nearly half (47%)" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">nearly half (47%)</a> spend 2-3 days on such matters.
These challenges have provided the impetus for corporates to begin embracing simple, tech-enabled solutions that digitalise these processes, with <a title="89%" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-corporates" target="_blank" rel="noopener">89%</a> of senior-finance decision makers now looking into new technology and platforms to automate their FX operations.
With corporates on the search for efficiency gains and cost-savings, it is likely that many will begin moving away from traditional legacy processes towards more automated digital infrastructure in the coming year.
<h3> Outsourcing </h3>
Outsourcing is set to also gain traction in FX in the year ahead.
FX is one of the <a title="largest and most liquid" href="https://www.bis.org/statistics/rpfx22.htm" target="_blank" rel="noopener">largest and most liquid</a> markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase often have their own complications and can be a huge administrative burden for some corporates, eating up much needed time and resources.
For these reasons, many Treasury functions are moving towards external solutions that can assist with these steps; according to&nbsp;<a title="HSBC and Acuris" href="https://www.gbm.hsbc.com/en-gb/campaigns/rethinking-treasury-survey-2021?utm_content=187570063&amp;utm_medium=social&amp;utm_source=linkedin&amp;hss_channel=lcp-19171726" target="_blank" rel="noopener">HSBC and Acuris</a>, 44% of CFOs in larger companies&nbsp;have outsourced some of their day-to-day functions.
With the right partner, outsourcing frees up resources for more effective use elsewhere. The end product is also more likely to be of higher quality, leading to improved execution. &nbsp;
Heading into 2023, we expect more firms to recognise that outsourcing does not necessarily mean a loss of quality or control, but is in fact an effective way of saving time and money on FX activities.
<h3>Navigate 2023 with MillTech</h3>
With currency volatility expected to continue well into 2023, we believe it is vital that corporate treasury teams partner with the right providers to navigate this landscape.
MillTech&rsquo;s market access, pricing power and operational resource enables it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at corporates.
We provide access to a <a title="transparent marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing a unique and significant pricing efficiency for our clients. Rather than spending months setting up multiple FX facilities with different counterparties, firms can sign up and begin transacting within weeks.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a> with us to find out more about how we can help you navigate your FX challenges in 2023.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

With many treasurers now planning for the year ahead, here are three key FX trends that we believe are likely to affect the way in which Corporates manage their currency exposures in 2023.

3 Key Fx Trends for Cfo

Key FX trends for corporate treasurers in 2023

When OpenAI launched public access to ChatGPT we got excited. Access to a powerful emerging technology . . . check . . . a company and a product with capital letters at the start and end . . . check. It felt like a perfect match for MillTech.
<h3>What is ChatGPT?</h3>
For those that haven&rsquo;t had a chance to play with it yet. <a href="https://openai.com/blog/chatgpt/" target="_blank" rel="noopener">ChatGPT</a> is an AI that uses natural language processing (NLP) to generate content and conversations. Chatbots have been around for years and years, but recent advances in NLP, with models drawing on a much larger number of factors, has changed the game. As a result, the conversations and communications that are outputted are much richer with more context, tone and style.
<h3>Applying ChatGPT to MillTech</h3>
We got stuck in and started exploring use cases.
The first out of the blocks was as a code-writing support tool. Andy, our cloud architect, was working on a failover script for our DR environment. He threw the challenge at ChatGPT. Whilst the solution it came up with was not perfect, it was a nearly workable solution with a few elegant elements that fed into our eventual solution. The feature of clicking a button to switch between languages was interesting and something that could play a useful role in refactoring code from one language to another. With Microsoft heavily involved in ChatGPT and also owning GitHub, which has Copilot its own code writing AI support tool, there's an exciting possibility for collaboration to build a powerful product to augment human engineers.
The next use case we explored was a policy generator. One of the challenges for an early-stage regulated organisation is to quickly put in place the range of policies required to define standards and protect your organisation. Whilst this will always be personal to the organisation, quickly generating boilerplate policies can really help accelerate this process.
We&rsquo;ve not implemented anything here yet but see great potential for NLP to support our marketing efforts. I can see us improving the chat experience on our site, replacing the FAQs with something more dynamic and quickly generating social content.
Perhaps my favourite use so far, was <a href="https://milltechfx.com/company/leadership-team/eric-huttman" target="_blank" rel="noopener">Eric</a> our CEO turning to ChatGPT to advise him on how to dress for the smart casual theme for the company Christmas party.
<h3>Looking to the future</h3>
From an industry perspective, a word of caution. Global regulators are working to define safeguards around NLP models. In the meantime we should assume that responsibility sits with the company using the model. For that reason we will be staying away from using unsupervised NLP models for regulated activities such as financial advice or prospecting clients.
From a tech perspective, ChatGPT has an exciting future. The current model is based on 175 billion parameters, the next major version, version 4.0 is expected to use 100 trillion parameters, which will lead to another major leap in its capability.
It&rsquo;s certainly exciting and something we will continue to explore at MillTech.
&nbsp;
Source: <a title="A New Chip Cluster Will Make Massive AI Models Possible" href="https://www.wired.com/story/cerebras-chip-cluster-neural-networks-ai/" target="_blank" rel="noopener">Wired,&nbsp;A New Chip Cluster Will Make Massive AI Models Possible</a>

ChatGPT is an AI that uses natural language processing (NLP) to generate content and conversations. Chatbots have been around for years and years...

Slide2   Approved

Exploring generative AI use cases for MillTech with ChatGPT

Against the backdrop of increasingly rapid climate change and pressure from investors and consumers, Environmental, Social and Governance (ESG) factors are now at the very heart of the decision-making process for many businesses.
More than <a href="https://www.ey.com/en_gl/assurance/how-can-corporate-reporting-bridge-the-esg-trust-gap" target="_blank" rel="noopener">three-quarters</a> of investors think that companies should make investments that address ESG issues relevant to their business, even if it reduces profits in the short term. Likewise, a recent survey from <a href="https://www.ftadviser.com/investments/2021/10/25/the-only-way-is-esg/" target="_blank" rel="noopener">PwC</a> found ESG funds are expected to exceed conventional funds by 2025.
The movement is playing an increasingly important role in FX. According to MillTech&rsquo;s own <a href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">2022 fund manager FX report</a>, 58% of fund managers surveyed said that their FX counterparties must have strong ESG credentials while 36% said that it was an important consideration.
As a result of this growing policy and regulatory momentum, we believe ESG is now a fundamental precept of investing and forms a core component of firms&rsquo; operating practices.
&nbsp;
<h2>Our commitment to net-zero</h2>
At MillTech, we are strongly committed to our own ESG responsibilities and reducing our carbon footprint, ensuring that our business practices align with internationally recognised standards such as the <a title="Principles for Responsible Investment" href="https://milltechfx.com/resources/blog/principles-for-responsible-investment/" target="_blank" rel="noopener">Principles for Responsible Investment</a> (PRI). In 2021 we focused on reducing emissions from our group wide technology. For our remaining emissions we offset 60.45 tonnes of Carbon Dioxide: an important milestone in reaching our longer-term goal of cutting our group-wide carbon footprint by 30% between 2021-2024.
We are proud to be supporting the <a href="https://offsetra.com/projects/pacajai" target="_blank" rel="noopener">Pacajai REDD+ Project</a> in Brazil. The project&rsquo;s main aim is to prevent and avoid unplanned deforestation in native forests, avoiding the net emission of 264.116tCO2e for a period of 40 years. Its plan includes rigorous monitoring, involving the local community &amp; local settlers, who are receiving extensive training in forest management techniques.
The project has been certified with Verra's prestigious Climate, Community &amp; Biodiversity (CCB) standard, which is a testament to its strong positive social, environmental, and economic impacts.
MillTech&rsquo;s support for Pacajai&nbsp; REDD+ will contribute to the project&rsquo;s growing efforts towards achieving inclusive community forest management as well as biodiversity objectives. These include:
<ul>
<li>Managing the land in the form of a "conservation reserve private sector&rdquo;, developing and implementing a management plan. This plan includes rigorous monitoring and inspection plan based on existing experience of surveillance activities underway in the area since 2008.</li>
<li>Protect local ecosystems by avoiding unplanned deforestation and will enhance ecosystem functionality by allowing areas of deforestation to regenerate, thus eliminating ecosystem fragmentation</li>
</ul>
<h3>&nbsp;</h3>
<h2>Don&rsquo;t forget the &lsquo;G&rsquo;</h2>
In addition to supporting the first two letters of the acronym, our <a title="FX-as-a-Service" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FX-as-a-Service</a> model is also helping clients establish strong governance.
In our view, strong governance in areas such as regulatory compliance, transparency and implementation of industry best practices must form a central element of any business seeking to be a good corporate citizen. Therefore, we continue to implement best practices to enable our customers to achieve best execution with full transparency with our automated FX solutions.
Firstly, we allow our clients, many of whom rely on a single bank or broker for execution, to compare institutional-grade rates from more than ten counterparties. While firms traditionally tend to only work with a small number of counterparties for their FX due to the operational complexity of setting up multiple banking relationships, our multi-bank marketplace offers an unprecedented level of price competition. This gives our clients a far more transparent view of the market.
Secondly, our <a title="independent transaction cost analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">independent transaction cost analysis</a> (TCA) helps clients to assess the broader quality of execution and establish greater cost oversight. Transaction costs can be hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. Our independent TCA enables clients to understand how much they are being charged for the execution of their FX transaction, ensuring cost transparency.
As clients and investors become increasingly driven by ESG criteria, it is crucial that the industry supports the right initiatives and puts the correct processes in place to meet this demand.
Get in touch&nbsp;<a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a> to find out how we can help you meet your ESG criteria.

Environmental, Social and Governance (ESG) factors are now at the very heart of the decision-making process for many businesses...

Thumbnail Esg Mill Tech Carbon Neutral Amazon

How is MillTech supporting the ESG drive?

London, 16th November 2022: A new report from FX-as-a-Service pioneer, MillTech, has found that the FX challenges for <a title="fund managers" href="https://milltechfx.com/clients/fund-managers-and-institutional-investors/" target="_blank" rel="noopener">fund managers</a> are intensifying with the rising threat of currency movements negatively impacting their investment returns.
&lsquo;<a title="MillTechFX FX Survey 2022: The intensifying FX challenges for fund managers" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">MillTech FX Survey 2022: The intensifying FX challenges for fund managers&rsquo;</a> surveyed 250 senior finance-decision makers at fund managers and found that FX exposure from foreign currency assets, management fees, investor capital and at portfolio level has increased in recent years. Over two thirds (70%) of respondents said that the number of cross border investments in their firm had increased over the past five years, while 66% experienced an increase in non-base currency investors in their funds. Overall, 93% of respondents stated that FX was significant to their business.
Fund managers are dedicating considerable resources to FX with over half tasking at least three people with FX related activities. Despite this, only 15% said their setup was best in class, while 33% said it was either below average or worst in class.
The biggest challenge senior finance decision-makers at fund managers face when dealing with FX is fragmented service provision (35%). This was followed by securing credit lines (34%), cost calculation (33%) and forecasting exposure (28%). When it comes to their FX operations, the biggest hindrances facing fund managers are demonstrating best execution (43%) and getting comparative quotes (40%).
Other findings include:
Increasing importance of ESG - 58% of fund managers said that their FX counterparties must have strong ESG credentials while 36% said that it was an important consideration. Only 6% said it wasn&rsquo;t part of their decision-making processes.
Move to automation - 84% of senior-finance decision makers surveyed said they were looking into new technology and platforms to automate their FX operations, while 32% said automation of manual processes was the most important factor in terms of FX management.
Barriers to outsourcing - There are still some barriers to outsourcing for many fund managers. These include a perceived lack of control (41%), high costs (36%) and integration (35%).&nbsp;
<a title="Eric Huttman" href="https://milltechfx.com/company/leadership-team/eric-huttman" target="_blank" rel="noopener">Eric Huttman</a>, CEO at MillTech, comments: &ldquo;Volatility has dominated the foreign exchange (FX) market so far in 2022, driven by high inflation, rising interest rates and geopolitical issues. As a result, FX risk management has become a strategic priority for fund managers who need to protect their returns against currency moves.
&ldquo;Despite this threat, fund managers are struggling with a number of issues when it comes to their FX setup, such as best execution, operational inefficiencies, transparency and governance. This has led the vast majority of senior finance decision-makers to explore new technology and seek to embrace digitisation in a bid to streamline operational processes.
&ldquo;Looking ahead to the rest of 2022 and beyond, we would encourage firms to get the right processes in place now and seek alternative technology-driven solutions that can help them achieve best execution and protect their business during these turbulent times.&rdquo;&nbsp;
To learn more about the FX challenges facing fund managers as well as the solutions they are implementing, read the full report <a title="Download Ebook Fund Manager Survey " href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

A new report from MillTech, has found that the FX challenges for fund managers are intensifying with the rising threat of currency movements...

The MillTech Blog