‘Hedging? Er, I think my gardener does it’

One view universally held at our recent Infrastructure Investor: Berlin event was that former Allianz Capital Partners chief executive and  chairman Thomas Putter was as fine a conference chairman as you could hope to find. This view was given added weight by an inspired “LP clinic” in which he roamed the room microphone in hand, prompting contributions from the floor.

Those inclined to shy away from his tough questions were humorously chided – in one memorable instance for a “strategically timed gulp of coca cola”. Another threat made by Putter was to force audience members to define dynamic currency hedging (the issue of currency hedging, and whether GP or LP should bear responsibiity for it, was one of the talking points). The implication was that such a definition would not be the easiest thing to provide off the top of one’s head.

Suitably intrigued, Infrastructure Investor took the opportunity to hunt for a definition. We found one courtesy of Auriel Capital Management, a firm which provides a dynamic global currency hedging programme for institutional investors. Apparently, this involves “utilising a suite of proprietary models encompassing fundamental, risk aversion and technical factors to determine the optimal hedge ratio for a foreign currency pair at a given point in time” among other techniques. 

In case you’re ever asked about it by Putter, we’d advise you to learn Auriel’s definition by heart.