MillTechFX launches margin-free FX hedging solution against FX forwards

Rick Steves

The firm provides direct access to wholesale FX rates from up to 10+ counterparty banks and offers transparent best execution coupled with reductions in FX cost and operational burden. 

MillTechFX has partnered with Investec Bank to provide fund managers with an innovative margin-free foreign exchange (FX) hedging solution.

The solution enables transparent best execution across 10+ counterparty banks without the cash drag associated with having to fund initial and variation margin calls.

Margin-free hedging frees up cash to invest more capital

Average investment lifecycles for private debt funds last one to five years, and private equity fund terms are closer to ten. This poses a long-term exposure to currency risk, usually hedged at the fund or share class level by the manager using FX forward contracts.

FX forward contracts, however, have their downside for alternative investment managers: many banks request collateral to be posted upfront (initial margin) and on an ongoing basis (variation margin), leading to a cash drag on the funds.

MillTechFX and Investec have come up with a solution that allows managers not to have their AUM held back to meet a margin call.

The new margin-free hedging solution solves this issue by removing the need for fund managers to post initial and/or variation margin.

The solution frees up cash to invest more capital and to increase operational efficiency and doesn’t jeopardize best execution.

MillTechFX provides direct access to wholesale FX rates

Max Dobson, Commercial Director of MillTechFX, commented: “We are excited to be partnering with such a dynamic, global bank that is truly committed to providing an excellent service for its clients. Investec’s credit appetite and balance sheet, combined with our independent multi-bank marketplace, will help managers significantly reduce their operational risk and costs while also enabling them to demonstrate best execution and best practice to their investors. This is the first of many strategic partnerships for MillTechFX, and we look forward to announcing more partnerships with innovative firms like Investec in the coming months.”

Sebastian Wright, Risk Solutions at Investec, commented: “At Investec, we have always focused on innovation to ensure our clients have access to industry leading solutions. As such, we are proud to be partnering with MillTechFX on this joint venture. The team at MillTechFX have impressed us from day one with their outsourced FX execution technology, providing fund managers access to a wide pool of interbank liquidity with complete transparency and operational efficiency. By partnering, we believe that we can solve the constant trade off that clients face – that of obtaining the best market price or the best market credit terms – whilst also offering the best market practice post trade in Trade Cost Analysis.”

MillTechFX was launched by Millennium Global – which executes $600bn in annual FX volume and manages over $20bn in institutional currency mandates – to help fund managers gain access to transparent and cost-effective FX execution and hedging solution solutions.

The firm provides direct access to wholesale FX rates from up to 10+ counterparty banks and offers transparent best execution coupled with reductions in FX cost and operational burden.

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