Sarona tackling FX risk in F&EM

Fear is a strange thing – never more so than for private equity investing in emerging markets.  Investors fear what they don’t know, and local currency risk is a big unknown.  With nearly 75% of F&EM PE funds being denominated in USD, local currency depreciations can have a material impact on investor’s returns.

It’s clear that existing hedging tools don’t work to reduce currency risk for private equity investors.  These tools are designed for debt, where cash flow amounts and timing are easier to predict.  For private equity, we need new tools and new thinking.  That’s why Sarona has joined forces with USAID, EMPEA and Crystalus to seek innovative solutions that, by mitigating FX risk, could catalyse private capital flows into developing economies.

This study is an important first step to unlocking billions of dollars currently on the sidelines as it underlines the substantial demand from private institutional investors for local currency risk mitigation and provides clear and compelling guideposts in developing solutions.  The first progress report of the Sarona-led research project “Expanding Institutional Investment into Emerging Markets Via Currency Risk Mitigation” is now available for review and we welcome your comments and suggestions on the matter.

Read the full report here.