Final Report of FX risk mitigation initiative

Currency risk is a persistent problem in emerging market private equity. The fear of precipitous currency loss keeps billions of private equity dollars firmly on the sidelines – capital that could otherwise play a game-changing role in promoting sustainable growth across the developing world.

Conventional currency hedging approaches provide little relief. The amounts and timing of private equity cash flows are hard to predict, so instruments like swaps, forwards and options are costly, and can create as many financial risks as they solve.

Sponsored by USAID, and in partnership with EMPEA and Crystalus, Sarona set out to develop innovative approaches to address this issue with a project titled “Expanding Institutional Investment into Emerging Markets Via Currency Risk Mitigation”.

The project has achieved its objective – we identified three solution pathways and several new product ideas that provide a clear guidance in developing possible solutions market-tested among institutional investors and fund managers.

We invite like-minded stakeholders, both private and public, to build on and advance the Report’s key findings. Addressing currency risk for private equity investment in emerging markets is, at once, both a major challenge and a multi-billion dollar market opportunity for hedging entities and other risk mitigation specialists, such as insurers.

Read the final report here.

The interim progress report was published in May 2017 and is available here.