MillTechFX, Investec, Partner for Fund Manager FX Solution

MillTechFX, the FinTech affiliate of Millennium Global Investments, has partnered with Investec Bank to provide fund managers with a margin-free FX hedging solution which the firms say enables transparent best execution across 10+ counterparty banks without the cash drag associated with having to fund initial and variation margin calls.

As assets under management (AUM) continue to grow rapidly in the alternative investment community, an increasing number of fund managers have adopted a global strategy for raising and deploying their capital, the firms say, however, with average investment lifecycles for private debt funds lasting one to five years, and private equity fund terms being closer to 10, this introduces a long-term exposure to currency risk, usually hedged at the fund or share class level by the manager using FX forward contracts.

These FX forward contracts can be a significant drain on capital for alternative investment managers, with many banks requesting collateral to be posted upfront (initial margin) and on an ongoing basis (variation margin). This can lead to a cash drag on the funds, with AUM being held back to meet a margin call instead of being invested.

Against this background MillTechFX and Investec says their new margin-free hedging solution aims to solve this issue by removing the need for fund managers to post initial and/or variation margin – and crucially without jeopardising best execution, ensuring total cost transparency. This frees up cash, enabling fund managers to invest more capital, increase operational efficiency and drive down costs for their investors, they say.

“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,” says Max Dobson, commercial director of MillTechFX. “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, adds, “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.”