In this episode of The Validus View, Kevin Lester is joined by Nirvani Sookdeo and Pamela Youssef to discuss how hedging practices are evolving, drawing on insights from Validus’ latest report drawn from data from hundreds of private capital funds.

The conversation explores how managers are approaching key decisions in their hedging programs such as instrument selection, hedge tenor and liquidity management. While FX forwards remain the most widely used tool, the discussion highlights how strategies vary significantly depending on asset class, expected returns and fund structure.

Looking ahead, the episode also considers how structures such as open-ended funds are influencing hedging decisions. With greater focus on FX exposure, real-time data and how hedging programmes are managed, managers are increasingly looking to build more flexible hedging approaches that can adapt to changing market conditions.

Takeaways

• Hedging is now a core part of portfolio construction, not just a defensive tool
• The impact of FX exposure on returns can vary significantly depending on fund structure, exposure levels and asset class
• FX forwards remain the most widely used hedging instrument due to their cost efficiency, with options used more selectively
• Liquidity risk is a key driver of hedging strategies, particularly in relation to mark-to-market movements and collateral requirements
• Open-ended fund structures are pushing managers toward more flexible, shorter-dated hedging strategies
• Data quality and real-time visibility remain key challenges, with increasing focus on technology-driven solutions