Skip to main content
high-rise office building
Case Study

FX hedging for Capital Economics

  • Chris Towner headshot

    Authors

    Chris Towner

    Managing Director
    FX Advisory

    Private Equity | London

Summary

A case study of how Chatham advised Capital Economics to optimally hedge the FX exposure from a multi-currency revenue stream and cost base.

Background

  • 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.

Our approach

  • 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.
rolling layering programme for fx exposure

A rolling layering programme to hedge FX exposure

Benefits

  • 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.

About the author

  • Chris Towner

    Managing Director
    FX Advisory

    Private Equity | London


Disclaimers

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.