Key Takeaways

  • It’s important to consider where a currency trades relative to its historical mean when allocating capital overseas.
  • Our machine learning model trained on 30 years of data demonstrates that a currency hedging strategy based on SVB’s proprietary signals could add significant internal rate of return (IRR) to overseas investments.
  • The gravitational pull of mean reversion may take years to take hold, so this strategy is appropriate for private equity and growth investors with long-dated investment horizons.

The focus of this paper is to introduce an objective framework to arrive at a hedging decision — when to hedge and how much to hedge — to maximize the economic value of the hedges on the basis of risk versus reward. Click here to view PDF.

Ivan Asensio Headshot
Written by
Ivan Asensio
David Song Headshot
Written by
David Song
David Song is a foreign exchange advisor for Silicon Valley Bank in Menlo Park, California.
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Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.

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