• Canadian Pension Plan
  • 2022
  • Currency Overlay, global
  • CAD 500 million
  • Segregated Account
  • Manager research

Our specialist says:

The end of the era of co-ordinated historically low interest rates in 2022 has seen a renewed opportunity for currency management to add value to investors’ portfolios, reducing risk and/or adding alpha. In this case, some non-typical requirements—such as a 0% neutral hedge ratio and a pro-cyclical base currency —required careful handling during the manager search.
  • 51Invited
  • 14Long List
  • 9Shortlisted
  • 3Finalists
  • 1Selected

Client-Specific Concerns

This Canadian investor was seeking to manage their non-CAD exposures through a dynamic (non-passive) currency overlay, with an emphasis on risk management as opposed to 'currency alpha'. The overlay was to be managed with the default position of being fully unhedged (0% neutral hedge ratio) with managers able to hedge up to 100%, depending on their active views. There were also no specific tracking error constraints in this particular case. Importantly, this client preferred systematic approaches over discretionary, and more diversified multi-strategy styles over single style approaches.


  • Adjusting for non-typical requirements: A 0% ‘neutral’ hedge ratio is somewhat non-typical for currency overlay projects, which tend to place the neutral point between 25% and 75% of foreign currency exposures. This preference was also potentially constraining on many managers, since it would (in their view) limit their ability to add value for the client. Through active dialogue with the manager community, the research team ensured a strong list of high-quality manager candidates despite the perceived restrictiveness.
  • Ensuring broad competition: Manager candidates for the mandate spanned a wide variety of firms, including global and local managers, overlay specialists and alternative managers. The competitive process generated both valuable information for the client to take into consideration when making their decision and attractive fees.
  • Delivering mandate-specific quant analysis: The team provided highly customised quantitative analysis of the impact of each manager's overlay on the client's specific equity portfolio. This included isolating periods of CAD strength and weakness and considering the potential risk / return and drawdown improvements. While performance was not intended to be the deciding factor in the client’s decision, this work helped to clarify the expertise of the various providers.