The currency exchange rates you receive are often uncompetitive, resulting in millions of dollars of underperformance annually for many funds.
How Big Is This Problem?
- FX Sales and Trading Revenue have been the largest source of US Bank trading profits for 14 years, according to data compiled by the US Treasury Department, with average revenue of $10 billion per year over the past two years.
Why Does This Happen?
- Custodians and Banks act as principal to your currency trades – in other words, when you sell currency, the custodian buys.
- Custodians’ and Banks’ economic incentive is to give your fund the worst possible rate you will accept.
What is the Solution?
Phase I – Quantify Currency Transaction Costs
- FX Transaction Cost Analysis (FX TCA) reports provide your fund with the proper fiduciary and compliance checks on both your investment managers and your banks. You will know exactly where to focus to improve performance.
- Results are compared to the leading universe of buy-side currency trading costs for proper context.
- Quantify FX Trading Costs associated with Transition Management and Portfolio Rebalancing.
Phase II – Reduce Currency Transaction Costs with FX Execution Consulting
- A recent plan sponsor client has reduced their FX trading costs by $5 million annually with similar trading volumes year-over-year.
- Transition Management and Portfolio Rebalancing often require FX trades. Most transition managers act as principal to your FX trades. Reduce FX costs by engaging a consultant that understands all the nuances of currency trading and acts solely on your behalf.
- Direct negotiations with your custodian and transition managers.
- Strategies for restricted currency trades.
- Increase network of market-making banks.