Why carry dominates outcomes, how path dependency compounds, and when structure matters more than price
FX hedging across institutional portfolios is often treated as a single problem with a single solution. In practice, it isn’t.
Different asset classes create FX exposure that behaves very differently over time. Equities, credit, infrastructure, and alternatives have distinct horizons, liquidity profiles, and exit dynamics. Applying a single rolling FX hedge across all of them produces outcomes that look controlled in the short term and drift badly over time.
The analysis approaches FX hedging through the lens of portfolio behaviour and implementation reality rather than product choice or theoretical efficiency.
It explains why rolling short-dated FX forwards persist, what they are genuinely effective at, and where they quietly fail as horizons extend. It shows why carry, not volatility, dominates long-run FX outcomes, and how path dependency compounds through repeated hedge rolls.
It also addresses where common alternatives break down. It explains when tenor matching works and when it creates more risk than it removes, why cross-currency swaps often look expensive but are structurally cheaper over the life of an exposure, and how FX options add value by acting as a control layer rather than a speculative overlay.
Read the practitioner paper
Designing FX Overlays That Behave