As the buy-side accepts FX as a legitimate asset class, transparency, trading technologies, and performance measurement will improve.
Boston, March 15, 2012 – A new report from Aite Group provides a look into fund-manager efforts and attitudes toward achieving best practices in foreign exchange (FX) trading and risk management. Based on a September 2011 to January 2012 Aite Group survey of 30 buy-side fund managers involved in various trading strategies and asset classes, the report focuses on the FX decision-making hierarchy.
More than ever before, buy-side firms are treating FX as a separate asset class and a source of alpha, and are actively engaged in hedging FX exposure on a regular basis. Increasing transparency in the FX trading process will become a focal point of pensions and endowments, motivating institutional fund managers to take a bigger fiduciary role in defining “best execution” in their FX trading and risk management methodologies. Similarly, the growth of electronic trading in FX has followed the examples of equities; more algorithmic strategies have been introduced, and HFT firms have brought more technological innovation into this-once manual process. The ability to measure trading performance and effectiveness in an electronically driven marketplace will drive the growth of a new business: FX transaction cost analysis (TCA).
“As fund managers become more conscientious about their fiduciary responsibilities, their customers’ demand for best execution will give rise to a new industry in FX TCA,” says Howard Tai, senior analyst with Aite Group and author of this report. “Since very few existing TCA vendors are currently providing this service, Aite Group is bullish on the prospects for new entrants in FX TCA to fulfill this growing need.”
This 39-page Impact Report contains 29 figures. Clients of Aite Group’s Institutional Securities & Investments service can download the report.