Institutional investors

Are your FX fees too high? It's common for institutional investors to overlook the fees they pay for transacting foreign exchange (FX). Many investors assume that their investment managers have sufficient incentive to execute FX trades efficiently. However, the structure of the FX market, and the focused expertise of most investment managers can result in the costs of FX transactions being higher than either investors or managers should expect. In their paper, "Are your FX fees too high?", Shashank Kothare and Lloyd Raynor, CFA present Russell research about the FX transaction costs investment managers and pension funds experienced. The two histographs and data below show costs have remained fairly constant during the study periods. Russell FX research: Investment manager and pension fund trading The authors estimated that these FX transaction costs were between 3 and 9 times greater than what might have been expected. They identified possible causes, including specialist competency, FX trading being part of bundled services, the lack of an equity-like market structure (FX trading typically isn't done on a central exchange, for example), and conflict of interest on behalf of the FX trading partner. Kothare and Raynor suggested key areas to focus on if investors want to ensure FX is executed efficiently. These included:   development of a well thought out execution plan careful selection of trading counterparties managing conflict of interest issues considering appointing an agent to manage trading The authors presented a checklist of questions to consider under each of these areas that investors could use to assess their FX program. Request this research For more information about our research and capabilities with foreign exchange trading, please contact David or Gerry:     West Coast David Rothenberg Managing Director 866-926-5934 East Coast Gerry Lillis Director 866-459-4128 Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. USI-6093-02-12			Request this research   Also of interest... Reduce your foreign exchange costs with Russell's Agency FX Webcast replay: Best practices in transition management for plan sponsors Webcast replay: How much are you paying for foreign exchange? Printer friendly version of this page