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In FX risk management. It pays to borrow a page from the world's most successful asset managers. Welcome to CurrencyCast CFO Edition. My name is Agustin Mackinlay. I'm the financial writer at Kantox and your host. Over the next couple of episodes we're going to discuss currency management from the lens of the Chief Financial Officer. In this week's episode, we're going to present five key lines of action from the world's most successful asset managers.
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Let's see if we can replicate these when it comes to currency management. The world of asset management, a $100 trillion industry, has been turned upside down by a completely unexpected revelation, indexing. By quietly replicating stock indexes some asset managers became widely more successful then the so-called geniuses who spend their day trying to beat the markets. Adding insult to injury, they have done so while charging only a fraction of the fees charged by the more speculative asset managers.
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And that brings the question, can CFOs replicate the tremendous success in the world of currency management? We strongly believe that there are good reasons for them to do so. Here are five key lines of action.
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The first line of action is avoid timing the markets. Nine out of ten of the so-called geniuses in asset management have been destroyed in terms of comparative performance, of course, by the more modest index funds. If one accepts the view that currency rates are unpredictable, they follow a random walk, just like stock prices and the price of other financial assets,
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then there is no reason to expect a different outcome in currency management.
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The second line of action is achieve operational brilliance. Indexing relies on brilliant engineering products that take the risk of human error out of the picture. By the same token, Currency Management Automation is an engineering product and uses application programing interfaces to achieve great precision in hedging, while also removing the risk of human error. The third line of action is apply data driven risk management.
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Successful asset managers use platforms that provide scalability. The same idea applies, in FX management, as CFOs are set to deploy scalable data-driven pricing and hedging solutions to enter new markets, allowing companies to buy and sell in more currencies with FX risk under control. The fourth line of action is innovate with a purpose. Indexing in asset management has allowed investors to save hundreds of billions in costs.
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Similarly, the purpose of FX automation is to allow companies to confidently embrace currencies, reducing cost to consumers and ultimately enhancing the value of the firm. Finally, the fifth line of action is keep a foot in several camps. The most successful asset manager keeps a foot in both camps: Active asset management and indexing. Likewise, CFOs have at their disposal an entire family of automated hedging programs, including balance sheet hedging programs and a variety of cash flow hedging programs, allowing CFOs to systematically reach all of their FX-
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related goals. When it comes to currency management, CFOs would do well to borrow a page from the world's most successful asset managers. They can lead a comparable revolution by using Currency Management Automation solutions to seamlessly run the entire FX workflow while avoiding fruitless speculation. Finally, if you enjoyed this video, be sure to like, share or subscribe to our channel
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in order to keep up to date with upcoming episode.
