Practitioner Papers

Most derivative hedges fail after they work.
Not because the structure is wrong, but because protection is never converted into action.

Credit hedging is widely treated as prudent risk management.
In practice, many credit hedges transfer accounting volatility rather than economic loss.

Long-dated rates hedges often fail even when rates behave as expected.
The problem isn’t forecasting – it’s structure.

Rates hedges often fail without ever appearing to break.

They neutralise duration and dampen volatility, yet still deteriorate over time as risk is pushed into liquidity, collateral, and governance channels. The problem is not pricing or forecasting, but structure.

FX hedging in equity portfolios is not a question of right or wrong. It is a series of trade-offs shaped by carry, governance, and indefinite holding periods. What works in the short term often fails over time – and the reasons are structural, not technical.

Collateral isn’t an operational detail anymore. It’s a structural use of capital that determines how portfolios behave under stress. Institutions that still treat margin as plumbing don’t see the drag building until liquidity tightens and forced decisions appear. By then, it’s already too late.

Most FX hedging underperforms not because markets move, but because structure does. Rolling short-dated hedges can look controlled quarter-to-quarter while quietly compounding carry and path dependency over time. When horizons stretch, price matters less than design.

Diversification works until it doesn’t. When correlations converge and liquidity disappears, only structures designed for stress still function.

Convexity only matters if it is converted into liquidity. Most tail hedges “work” on paper and still fail portfolios because authority, triggers, and execution discipline collapse under stress.

Most insurance investment offices don’t underperform because of markets. They underperform because governance, execution, and capital are misaligned.