NA Fund Managers Struggling with FX Volatility – Survey
Posted by Colin Lambert. Last updated: September 11, 2025
The latest report from MillTech surveying North American fund managers paints a picture of firms impacted by FX volatility, as well as a series of contrasts in how they are responding to said exchange rate moves.
The good news from managers is that 99% of those surveyed said their returns had benefited from exchange rate swings (largely a decline in the dollar that MillTech says is its worst first-half performance since 1973), the bad that 37% reported suffering losses due to unhedged FX risk. Nearly all, 99% again, say they have concerns over dollar volatility and this has manifested itself in 70% stating they are “considering” hedging where they currently do not – a huge increase from just 16% in a 2024 survey taken by MillTech.
The survey says that 85% of funds hedge their forecastable risk, up from 79% in 2024, but in spite of this, and the large increase in funds hedging, the mean hedge ratio has dropped sharply, from 55% in 2024 to 45% in the latest report. Notwithstanding this, the report says that 54% are increasing their hedge ratios. Equally, the report says that average hedging lengths dropped from 5.4 months to five months, however 52% say they are extending hedge lengths.
Hedging costs are also increasing, with 99%, again, reporting this, and 58% reporting a rise of between 50 and 100%. The average increase being 57% and 41% of respondents who don’t hedge cited costs as the primary reason.
Beyond costs, 2025 has brought a new set of hurdles for funds, according to MillTech, which says the leading challenges are fragmented service provision (36%) and securing credit lines (35%), neither of which featured in the top three last year.
“These shifts reflect tightening market conditions,” the report states. “72% of firms reported that their credit providers have tightened lending criteria, while an equal proportion noted increased rates and fees. The smallest funds bore the brunt of these changes, with 82% reporting significant cost increases, compared to 65% among the largest funds who were the least likely to be impacted.”
Compounding the pressure, the report says that 41% of smaller funds also struggled with onboarding liquidity providers, adding operational strain to already constrained resources.
“Together, these factors highlight that access to credit and operational efficiency have become as critical as cost management in determining firms’ resilience,” the report states.
The Full FX View
This report offers so many contrasts, but the underlying sense is a long-term theme of these pages – fund managers have not been taking their FX risk seriously enough.
The contradictions in reduced hedge ratios and increased desire to hedge merely serves to highlight how so many of these firms have missed the bus when it comes to FX. It would be interesting to know whether these firms even considered – or more pertinently were warned by their providers’ sales teams – the impact of the new administration in Washington DC, after all, the signals were there and were largely obvious for all to see. Either way, they are clearly now talking about being more defensive in their hedging strategies…just the nine months since markets started kicking off! These are issues that should have been addressed months ago – even more worrying is how so many respondents are still only “considering” hedging.
The major argument against hedging is, inevitably, costs, but again it shows, if not a lack of understanding of, then an indifference to, FX. I would be amazed is spreads didn’t widen in other markets when things get volatile – why should FX be any different? This seems yet another example of people believing conditions will never change – when are they going to realise that most of the last decade was the outlier?
There is no doubt that this world moves slowly – it is highlighted in the finding that email and phone usage has more than doubled over the past year. Yes, these funds are looking at automation, but the key word there is “looking”. It is hard to discern exactly how much is really going on – I understand to a degree people using the phone in volatile markets, but email?
The reality is that firms are most likely using a variety of methods for their trading, and this is something surveys like this struggle to capture. Yes, more trades are being done by email and phone, but they may well be low-value, administrative trades that are just a small part of the business. It is certainly to be hoped that they are not using email for decent-sized trades, if they are, the 34% of respondents who cited proving best execution as a challenge (up from 19% in 2024) will find their challenges increasing!
Eric Huttman, CEO of MillTech, kicks off his foreword to the report by noting, “2025 has firmly shattered the illusion that FX is just another consideration to keep an eye on,” and he is right. The problem is though that only a boiler room operation has ignored more red flags than many of the fund managers surveyed here.
And that is the feeling I take away from the report – that this segment of the industry needs to seriously up its game. Without in any way seeking to denigrate another sector of our business, I would have expected the attitudes reflected in this report to have come from the corporate world. The vast majority of corporates do not have finance as their core business and as such a lack of anticipation of FX events is to be expected, and understood.
Fund managers are professional money managers – trading and investing is their business – so how did they miss this? The reality is they probably didn’t, it’s just more evidence of their absolute blindness to one particular market, but it exudes a lack of professionalism that unfairly reflects upon the whole industry.
There are some very professional fund managers who focus on every part of the investment chain, including currency hedging. Hopefully next year’s report from MillTech will show a much greater number actually looking after their investors by taking FX seriously.
The main products funds are using to hedge FX risk, according to the report, are currency swaps (53%), FX swaps (52%) and spot transactions (48%). The largest firms, which typically have more global allocations and more frequent cross-border flows, are most likely to use spot transactions (59%), MillTech says. While 95% of firms say they have increased their use of FX options, 42% of hedging takes place using these instruments.
When asked about their top concerns regarding currency risk in the context of US tariffs, 41% responded with counterparty risk in hedging transactions, 35% with the impact of any policy changes, 34% increased volatility (the same percentage said they are also holding off major decisions due to the uncertainty), and 33% cited unpredictable market movements.
The report throws up another “surprising paradox” in the report’s words, in that while firms are investing in AI and automation, reliance on manual processes continues to rise. The number of managers using email to instruct trades has more than doubled from 26% to 60%, while phone usage has also more than doubled, from 24% to 53%.
Unsurprisingly, given these findings, the automation of manual processes is now top priority for 40% of firms, up from 24% in 2024.Transparency of costs shares top billing at 40% (up from 25%), while uncollateralised hedging comes in just behind at 39% (29%). Every aspect of the trade cycle is in focus for funds when it comes to automation, led by settlement, price discovery, onboarding LPs, and risk identification.
Equally predictable is enthusiasm for AI, with 77% saying they are “already using it (42%) or aggressively evaluating it (35%)”. Smaller firms are leading this adoption, the report notes, with 50% saying they are doing so, while just 29% of larger firms are on the bandwagon, with 12% saying they are “evaluating AI’s potential carefully”.
Every fund surveyed said they outsourced at least part of their FX operations, led by 36% citing access to specialised expertise as the primary factor. Beyond that, 34% cited risk management and compliance for outsourcing, 32% scalability and flexibility in operations, as well as enhanced efficiency and automation, while 29% said it was to focus on core business activities and 25% to reduce costs.
“Unlike in 2024, when the strong dollar was the primary concern, the pendulum has now swung in the other direction,” observes Eric Huttman, CEO of MillTech. “This has been a reminder of how quickly market conditions can reverse. For funds, our research shows this volatility cuts both ways: some have profited from politically driven swings, while others have seen unhedged positions painfully exposed. The message is clear: FX risk can no longer be left to chance.
“The good news is that for many fund managers, FX risk management has moved to the top of the agenda,” he continues. “There is now broad recognition that well-executed hedging strategies can protect margins and cushion against unexpected losses. At the same time, outsourcing FX operations to experienced providers offers access to specialist expertise, greater efficiency, and full transparency. In a market where a single currency move can erase months of gains, proactive FX management is no longer optional; it is essential to preserving performance and investor trust.”
