Mercer has launched a new and enhanced foreign exchange (FX) transaction cost monitoring service to ensure institutional investors are aware of how much transacting in foreign exchange is costing them.
Historically, FX costs have been opaque and very hard to manage and the new service is designed to help bring greater clarity and control of FX costs. The launch of this service reflects the growing interest that investors are paying to foreign exchange execution costs following recent lawsuits against a number of institutions alleged to have applied uncompetitive foreign exchange rates.
Due to the lack of transparency of FX markets there has been a lack of investor oversight on FX transactions often leading investors to pay more for trades than they should, which can erode the value of their assets considerably.
Through Mercer’s new service, pension funds and other institutional investors can request reviews of all spot and forward FX transactions undertaken at multiple trading locations to determine the competitiveness of transactions undertaken on their behalf. It is Mercer’s experience that FX costs can be substantially reduced by undertaking an FX monitoring program.
Lounarda David, Asia Pacific Director at Mercer Sentinel, said: "Institutional investors are increasing their attention on sources of performance leakage. In part this has been prompted by recent experience that shows funds and managers are at considerable risk of incurring significant excess foreign exchange transaction costs.
“The market is becoming aware that if there is no transparency, the risk of paying too much is high and this can impact fund performance. Our foreign exchange transaction cost analysis service provides clear insights into the sources of excess costs, recommendations on how to address sources of performance leakage and advice on how to structure FX arrangements as part of a long term solution," Ms David said.
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