NCFX Hires Share Class Hedging Specialists

Independent FX benchmark administrator and data analytics company New Change FX (NCFX) has formed a new share class hedging specialist team to focus on assisting its client base within the wider asset management and custody sectors.

Leading the team for NCFX will be Paul Duprey, who co-founded Institutional FX Advisory Partners in 2016 having left HSBC after an almost 27-year career in the bank’s FX business; and Matthieu Herbeau, who founded a consultancy firm in 2018 after leaving RBC Investor & Treasury Services, where he spent two years as global head of FX execution. Prior to RBC, Herbeau worked for 12 years at BNP Paribas Securities Services, including a spell as global head of FX.

NCFX says the aim of the team will be to help clients to objectively monitor, manage and contain FX costs by the application of a set of TCA tools developed specifically to identify inefficient execution processes.

The hires follow the October 2020 publication of a white paper by NCFX and Lumint Corporation which sought to quantify the effect of foreign exchange on the relative fund performance of hedged and unhedged share classes. In the report the firms argued asset managers are “turning a blind eye” to FX costs and passing these costs directly on to end investors by means of a lower net asset value. The study found the average transaction cost of an overlay FX hedge was $267 per million, something that results in a “substantial underperformance across the board” by currency hedged share classes.

The paper was able to identify AUM for 19 of the 30 managers analysed resulting in total trading volume of $1.6 trillion over an almost three-year period and a cost of $432 million – or $267 per million. The majority of the transactions were monthly rolls. Against this, NCFX said the average cost reported by its TCA analysis for swap transactions was $35 per million, with the best traders expecting a cost in the region of $4 per million.