7orca Active FX Overlay – return-risk-oriented management of hedge ratios relative to a predefined benchmark.
Analyse. Vary. Stabilise.
Active FX Overlay adds a dynamic management layer to institutional currency management. The approach is aimed at investors who do not seek to hedge foreign currency risks exclusively on a static basis, but wish to manage them in a market-adaptive manner within a clearly defined mandate framework.
At its core is a systematic investment process that translates currency developments and hedging costs into transparent management logic. Active FX Overlay is therefore not understood as a short-term market view, but as a rules-based component of institutional portfolio management.
The objective is to complement static hedging approaches with a structured, dynamic component – with a focus on risk management, character consistency and transparent implementation.
The framework remains mandate-specific.
Active FX Overlay is configured using a client-defined benchmark. This benchmark forms the neutral reference point for managing the hedge ratio and can be structured, depending on the mandate, for example as 0%, 50% or 100% hedged.
In addition, minimum and maximum hedge ratios are defined. This ensures that dynamic management remains within clearly defined ranges: the hedge ratio can adjust to market conditions without leaving the mandate-specific framework.
This creates the structural basis for active hedge ratio management – benchmark-related, transparent and institutionally controllable.
Quantitative investment process.
The dynamic adjustment of the hedge ratio is based on a multi-model architecture. The models analyse different market information and identify trends across various horizons and market phases.
Each model generates a signal. The signal can be long, neutral or short. These signals are aggregated and translated into a hedge ratio.
This creates a systematic process for managing the hedge ratio – transparent, repeatable and embedded in the previously defined benchmark and range framework.
- Trend identification across several model categories
- Aggregation of individual model signals
- Translation of signals into a hedge ratio
- Management within the mandate-specific benchmark framework
Systematic and rules-based.
Active FX Overlay uses different return drivers within a quantitative investment process.
This combination is intended to reduce dependence on individual market phases and support the repeatability of the approach. The investment process remains rules-based, transparent and focused on a high degree of character consistency over time.
The models respond to exchange rate developments and implicit hedging costs. Management, however, always remains within the mandate-specific requirements defined in advance.
Focus on an asymmetric profile.
In addition to dynamic hedge ratio management, a client-specific premia strategy can be used. This complements the dynamic management of the hedge ratio with a premia-based component. The objective is the systematic harvesting of the volatility risk premium in the FX market – particularly as a stabilising component in market phases without pronounced trends.
Within Active FX Overlay, this component is understood as part of a holistic risk management approach – not as an isolated option strategy.
The combination of a dynamic hedge ratio and a premia-based complement creates complementary return drivers: directional market movements on the one hand and risk premia on the other.
This can stabilise the return profile and reduce dependence on individual market phases.
Institutional overlay structure.
Active FX Overlay is integrated into existing mandate, fund and governance structures. The basis remains robust FX Exposure Management, supplemented by maturity management, best execution, liquidity management and reporting.
Management does not take place separately from the operational framework. It is institutionally embedded through an FX Overlay segment, defined processes and transparent reporting.
Key components
- FX Exposure Management
- Benchmark and hedge ratio range
- Multi-model architecture
- Premia strategy
- Best execution
- Liquidity management
- Reporting and performance attribution
Institutional use of dynamic currency management.
7orca Active FX Overlay supports institutional investors in managing hedge ratios in a market-adaptive manner, assessing benchmark structures and establishing asymmetric return-risk profiles in currency management.
Focused. Systematic. Transparent.
- Definition of suitable benchmark structures
- Assessment of minimum and maximum hedge ratios
- Use of a quantitative multi-model architecture
- Integration of premia-based components
- Reporting and transparent performance attribution