FX hedging for Capital Economics
Hedging and Capital Markets
Private Equity | London
A case study of how Chatham advised Capital Economics to optimally hedge the FX exposure from a multi-currency revenue stream and cost base.
- Capital Economics is a leading provider of macro-economic research and analysis sold to clients on an annual subscription basis.
- The business completed a secondary management buy-out in March 2018.
- Capital Economics was introduced to Chatham by the private equity fund that invested in the business.
- Capital Economics has a GBP cost base with revenue in a variety of foreign currencies.
- A large proportion of the company’s sales are USD, causing an FX exposure.
- Capital Economics did not have much relevant in-house treasury expertise and was looking to engage independent advice.
- Chatham explored FX forwards, options, participating forwards, and collars.
- Settled on FX forwards, as the nature of Capital Economics’ business allows reasonable prediction of their USD cash flows.
- Chatham also proposed use of a rolling layering programme of forwards (see below graph).
- Chatham introduced two counterparties and obtained illustrative pricing.
- The rolling layering strategy is straight forward and very effective, allowing Capital Economics to be 100% hedged in the short term, while maintaining flexibility further on.
- Chatham ensured deals were done at agreed, fair and transparent margins.
- Chatham assisted Capital Economics with counterparty selection, documentation and dry runs.
- Capital Economics’ board was safe in the knowledge that the process was led by an independent and experienced team.
Contact the author
Please complete the form below to find out more about optimal FX hedging strategies.
This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.
Our featured insights
An Altered Currency Landscape and Impact to Corporate Hedging Programs
This session will provide an update on FX markets, along with strategic and operational actions corporates are taking to ensure their programs keep pace with market dynamics, effectively assess and manage risk, and continue to achieve objectives.
LIBOR Transition: Key Action Items for Corporates
Join us for a panel discussion on the LIBOR transition, covering the economic, accounting, and operational implications of LIBOR fallback language and the developing SOFR market, with an emphasis on the next steps corporates should — and should not — move to the top of their priority lists.
Financial Risk Management Priorities for 2021
Treasury teams face a new landscape for 2021, which impacts forecast certainty, capital structure, and priorities. Companies are evaluating budgets, cash needs, and automation to drive efficiency. This session will outline areas to address now to prepare for managing financial risk in 2021.
Conducting a Holistic Diagnosis of Your FX Hedging Program
We will provide a blueprint for maximizing the return of your FX hedging program by using data-driven decisions to set up an effective program, increasing operational efficiencies, automating manual processes, streamlining accounting workflows, and communicating meaningful reporting to stakeholders.
Chatham Financial wins Hedging Adviser of the Year at the Risk Awards
On November 26, Chatham Financial accepted the inaugural Hedging Adviser of the Year award at the 2020 Risk Awards. This new award recognizes excellence in providing independent advice to derivatives users.
Chatham's 2019 annual European business review
Our annual business review summarizes JCRA's (now part of Chatham Financial) and Chatham's European activities, sector trends, and deals in 2019.
Do you have 2020 vision on your FX transactions?
Read our analysis on how best to hedge FX risks and how we advise funds and businesses on optimal pricing for their FX transactions.