UK Funds to Raise FX Hedging: Survey
Posted by Colin Lambert. Last updated: December 3, 2025
UK fund managers are planning to ramp up hedging in 2026 thanks to currency volatility, especially in Sterling, although many seem to be hamstrung by the continued use of manual processes.
The MillTech UK Fund Manager CFO Report 2025 finds that 48% of respondents are planning to increase their hedge ratios and 46% plan to extend their hedge lengths in the next year due to pound volatility. Only 19% expect to reduce hedge ratios, and just 7% plan to shorten tenors, while over half (54%) of those not hedging say they are now considering doing so.
This is the result, MillTech says, of 95% of fund managers reporting losses from unhedged FX risk, in spite of the fact that 81% say they hedge their predictable exposures.
This anticiapted hedging boom is seen despite rising costs, which have increased by an average of 69% over the past year, the survey finds. Nearly one in five funds (19%) said their hedging costs have more than doubled, while 27% named rising costs as their top concern. Cost transparency (41%) and cost reduction (38%) also ranked among their top three priorities.
MillTech highlights what it terms “a stubborn reliance on manual processes” in the finding that email (47%) and phone (45%) are the two most common instruction methods for FX trades (and both are up from 2024 when they were 42% and 35% respectively), however it does add that 33% said the ideal FX solution is a digital, multi-bank platform with advanced automation.
The mean hedging ratio in the survey fell to 46%, the lowest level since before 2023, and the average hedge length now stands at 5.5 months, up slightly from 5.2 last year, but below 5.7 in 2023, showing a more measured approach to FX risk management this year, MillTech says. Equally, 91% of respondents have increased their use of FX options in the past year, up from 86% in 2024, while 41% are significantly ramping up usage.
The top FX concerns in the context of US tariffs are the impact of policy changes on currency values (37%), increased volatility (37%), and holding off on major decisions due to high levels of uncertainty (35%), demonstrating the effects of policy unpredictability on FX markets.
The key FX challenges being faced by UK fund managers meanwhile, are high costs, forecasting existing currency risk, manual processes, securing credit lines, and regulatory and compliance pressures, with around 27% all citing these issues.
In spite of the continued and increased heavy use of email and phone, 42% report automating manual processes as their leading operational goal, with reporting (38%), price discovery (38%), and trade execution (38%) being the three most targeted areas for automation. 25% of funds are already using AI in FX processes, while another 30% are aggressively or actively exploring adoption.
Outsourcing remains a key lever for efficiency and focus, with the top reasons being scalability and flexibility (41%), focus on core business (38%), and risk management and compliance (32%).
The Full FX View
A few things stand out from this report, not least that once again, fund managers are waiting for the FX market to do its worst and then act, rather than be pre-emptive. Notwithstanding that, it is good news for the industry if this sector is going to be hedging more.
Less good news is how the usual 250 respondents to all MillTech surveys still seem uninterested in improving their processes. When email and phone increase their share of FX instruction methods, you know you are dealing with a group that is not really paying attention to its hedging.
Equally, in last year’s survey, 55% said they intended to increase their hedge lengths, the fact that 46% are still talking about it this year suggests that not all followed through on their decision. Last year 33% were looking to increase their hedge ratios, this year it is 48% – once again you find yourself wondering if this reflects the inertia too often seen in this sector.
This in turn brings into question whether they will actually hedge more in 2026, after all, if you’re willing to get your pricing via email, how much do you really care? It throws into contrast the finding in the report that over half are using, or actively exploring, AI in their FX processes – I would think the first thing any AI worthy of the name would point out is “don’t send your trades via email”!
Overall, and not for the first time, this report can be seen as highlighting the unwillingness on the part of UK fund managers to even consider the impact of FX on their businesses. It would be interesting to know if they operated in the same slow, manual and half-hearted fashion when dealing in fixed income and equity markets. If the answer is they do, then investors have been warned and should probably start looking elsewhere for someone who actually cares about preserving their savings…
“2025 has been a challenging year for UK fund managers navigating unprecedented currency volatility,” observes Eric Huttman, CEO of MillTech. “Record FX volumes, as confirmed by the BIS Triennial Survey, reflected intense market swings that reshaped trading dynamics and tested even the most experienced managers. Rising costs have made hedging more difficult, but the market in 2025 has highlighted that staying unhedged is the bigger gamble.
“Sterling’s sharp fluctuations against both the dollar and the euro have underscored the importance of a well-tuned FX strategy that keeps performance steady when markets turn,” he continues. “Yet too many managers remain reliant on manual workflows, leaving them exposed to inefficiency and risk.
“Looking ahead to 2026, the future of FX management will be defined by intelligent systems that automate the routine and empower managers to act with clarity, speed and conviction,” Huttman concludes.
