The intensifying FX challenges for Fund Managers - the MillTechFX 2022 Survey
15 November 2022
London, 16th November 2022: A new report from FX-as-a-Service pioneer, MillTechFX, has found that the FX challenges for fund managers are intensifying with the rising threat of currency movements negatively impacting their investment returns.
‘MillTechFX FX Survey 2022: The intensifying FX challenges for fund managers’ 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’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%).
Eric Huttman, CEO at MillTechFX, comments: “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.
“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.
“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.”
To learn more about the FX challenges facing fund managers as well as the solutions they are implementing, read the full report here.