The Hedging Dilemma: Cost vs Risk [2025 research]

The cost of managing FX exposure has climbed sharply and is cited by 27% of UK fund managers as their biggest challenge in 2025. This pressure is forcing many to reassess their approach, weighing the rising cost of protection against the growing risk and potential cost of doing nothing.

Key insights:

• Hedging activity falls: Only 81% of UK fund managers are hedging forecastable FX risk, down from 88% in 2024.
• Costs surge: Mean hedging expenses have risen by 69% year on year, with over half of fund managers  seeing costs at least double.
• CFOs under pressure: Hedging costs up by a mean of 75%, and nearly one-third (32%) face credit access challenges.
• Technology gap: Almost half still trade by email (47%) or phone (45%), limiting price competitivity.
• Digital shift begins: One in three fund managers believe a digital, multi-bank platform with advanced automation will best meet future FX needs.

 

Hedging less, risking more

Hedging activity among UK fund managers has fallen noticeably year on year - and now trails their North American counterparts. In 2025, 81% of UK managers reported hedging forecastable currency risk, compared with 88% in 2024 and 85% in North America.

This pullback comes despite 95% of funds reporting losses from unhedged FX risk so far this year, with two in five describing those losses as very significant. The sharp rise in costs is a major driver: mean hedging expenses have surged 69% year on year, while over half of fund managers say their costs have at least doubled, and nearly one in five (19%) report increases of more than 100%.

For many, the choice to hedge has become more complex. Some are reducing their coverage or shortening hedge horizons, while others are delaying decisions altogether. The result is a market caught between risk aversion and cost control.

Concerns around global trade policy are adding to the uncertainty. In the wake of US tariff tensions, 37% of funds cite policy shifts and increased volatility as top concerns, while 35% admit they are holding back on major strategic moves until the outlook becomes clearer.

As hedging costs rise and global conditions remain unpredictable, many UK fund managers face a difficult balance: absorbing higher expenses to stay protected, or risking greater exposure in the hope markets calm.

 

The CFO conundrum: Cautious but costly

UK CFOs are feeling the sharpest impact of rising FX hedging costs, reporting a mean increase of 75% year on year. Over four in five have seen their expenses rise by more than 50%, highlighting the strain of managing currency risk in today’s volatile markets.

Although CFOs are the most likely to hedge, they maintain the lowest mean hedge ratio (41%) and hedge the shortest duration - just 4.6 months. Such a cautious, short-term stance can heighten sensitivity to rate fluctuations and add to overall costs, highlighting the trade-off between flexibility and expense.

Their limited hedge activity may also be constraining market access. Almost one-third (32%) of CFOs report difficulties securing credit lines, suggesting that smaller or less frequent hedging programmes may not always attract the most competitive terms from liquidity providers.

However, this relatively cautious stance appears to be shifting. With 95% of CFOs reporting losses from unhedged FX risk - and half describing those losses as very significant - many are rethinking their approach. Three in five plan to increase hedge ratios, whilst 42% intend to extend hedge tenors to combat pound volatility.

 

Rethinking execution: The case for a digital edge

Despite mounting pressure to improve cost efficiency, many fund managers continue to rely on outdated, manual FX execution processes. Nearly half still instruct trades by email (47%) and phone (45%) - methods that make it difficult to benchmark pricing in real time. As a result, one in four fund managers say they struggle to compare rates effectively, a factor that can feed directly into higher hedging costs.

However, the limitations of manual execution extend beyond cost. Fragmented workflows, inconsistent communication, and limited audit trails can increase operational risk and reduce transparency, issues that are becoming harder to justify in a market full of tools to help achieve the speed and accuracy required for effective FX risk management.

Looking ahead, sentiment is clearly shifting towards technology-driven solutions. One in three managers now believe a digital, multi-bank platform with advanced automation will best meet their FX needs. By consolidating access to liquidity providers and enabling transparent live rate comparison on a single interface, such platforms can help funds achieve demonstratable best execution, streamline execution through end-to-end automated workflows, and reduce manual intervention.

At MillTech, we see this shift first-hand. As fund managers seek to balance cost efficiency with control, the focus is moving toward smarter execution, solutions that integrate seamlessly, provide comparative rates across tier-one counterparties, and deliver data-driven insights. By replacing manual processes with intelligent automation, firms can strive to achieve faster execution, greater transparency, and reduce FX costs.

 

Want to explore the research in detail? Download the full report for free here: The MillTech UK Fund Manager CFO FX Report 2025

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