THE ISSUE

Foreign currency trades are required in order to invest in foreign markets, repatriate income and manage currency exposures. There is a significant number of foreign exchange (FX) transactions automatically traded without reference to competitive rates. The level of the spread charged to investor's can vary enormously if not closely monitored resulting in excess costs being incurred, ultimately eroding the value of their assets.

THE SOLUTION - WHAT GETS MEASURED GETS MANAGED

1. Monitoring

Mercer monitors an investors FX transactions to establish whether excessive costs are being applied above market rates.  Mercer’s analysis helps investor's understand the quality of FX execution and identifies opportunities to reduce costs leading to improved performance.

2. Report output

Mercer’s proprietary FX transaction cost software benchmarks individual trades against market rates.  The recently enhanced FX tool benchmarks currency forward contracts and has specialist features for monitoring currency overlays alongside more plain vanilla spot prices to ensure all types of FX trades are monitored and reviewed. 

Cost distribution illustrating a trend towards expensive rates and significant outliers

FX cost analysis reports can be customised to an investor's requirement and provided at any frequency from monthly to annual.  A report quantifies any excess costs and recommended action to stop a recurrence in the future.

BENEFITS

Monitoring ongoing performance not only facilitates good governance, it supports a constructive dialogue with investor's service providers leading to better execution and lower costs. 

Key benefits:

• Greater transparency, leading to enhanced governance
• Improved execution
• Lower costs
• Increased portfolio value

WHY MERCER?

Mercer has been providing FX transaction cost monitoring for clients over a number of years and have observed consistently strong performance once a monitoring process is established.

Mercer has also negotiated substantial cost recoveries on individual transactions where unreasonable rates have been applied. In a recent study for a large multinational insurance firm, we identified opportunities for netting, trade consolidation and facilitated the negotiation of a competitive fixed spread regime saving over €1m. 

Mercer is a leading global provider of investment services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 30 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 35 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing fiduciary management.