UK fund managers plan to expand their FX hedging next year,
according to a new report. Around 48% expect to increase hedge ratios, and 46%
plan to extend hedge lengths. In contrast, 19% expect to reduce hedge ratios,
and 7% plan to shorten tenors.
Hedging costs rose by an average of 69% over the past year.
19% said their costs more than doubled, and 27% said rising costs are their
main concern. Cost transparency and cost reduction were also top priorities.
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54% of managers not currently hedging are now considering
it. The plans reflect ongoing volatility in sterling, the report by MillTech
said.
UK Funds Turn to Automation, AI
MillTech CEO Eric Huttman said that “2025 has been a
challenging year” for UK fund managers. He pointed to “unprecedented currency
volatility” and said rising costs have made hedging harder. He added that
“staying unhedged is the bigger gamble.”
He also noted that many managers still
rely on manual processes and that “the future of FX management” will be shaped
by automated systems in 2026.
Automation is a growing focus. 42% of funds said automating
manual processes is their top operational goal. Reporting, price discovery, and
trade execution were the main targets. AI adoption is also rising. 25% already
use AI in FX processes, while 30% are actively exploring it.
Sterling Volatility Hits UK Fund Managers
Sterling had a volatile year. In July, it reached a
four-year high against the dollar, then posted its worst monthly performance
since 2022. The moves followed changes in US trade policy and rising global
uncertainty. Despite this, 81% of funds said they hedge predictable FX
exposure, but 95% still reported losses from unhedged FX risk.
The findings come from the MillTech UK Fund Manager CFO FX
Report 2025, based on a survey of more than 250 senior finance decision makers.
The report examines how firms are adjusting hedging strategies and their use of
automation and AI.
Outsourcing Supports Scalability, Risk Management
Interest in digital platforms is increasing. One-third of
fund managers said their ideal FX solution is a digital, multi-bank platform
with advanced automation. Manual processes remain common, with 47% of FX
instructions sent by email and 45% by phone.
Use of FX options continues to grow. 91% of UK funds
increased their use over the past year. The main FX challenges listed were high
costs, forecasting risk, manual workflows, access to credit, and regulatory
pressure.
Outsourcing remains part of the strategy. The main reasons
were scalability and flexibility, focus on core business, and support for risk
and compliance functions.
This article was written by Tareq Sikder at www.financemagnates.com.
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