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.
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