This article was originally featured in Hedgeweek.

As high volatility plagues global stock markets and currency markets face heightened uncertainty amid shifting US trade policies and global economic realignments, fund managers and institutional investors are reconsidering their approach to FX hedging infrastructure.

This evolution in market dynamics is forcing a rapid rethink of traditional approaches, driving demand for more comprehensive and technologically flexible solutions, according to Hans Jacob Feder, Global Head of FX Services at MUFG Investor Services.

“For the first time since World War II, the economic order might be challenged,” Feder observes. “What is clear is US policies are changing. What isn’t clear is how different countries will react, particularly Europe and China.”

The Changing FX Landscape

The current US administration’s approach to trade and investment policies has introduced a new element of uncertainty to currency markets altogether. Unlike previous periods where recessions or growth patterns were primary drivers of FX movements, geopolitical factors now exert significant influence.

“FX markets, more than most markets, are very affected by macroeconomic trends,” Feder explains. “And so, we will see volatility increase.”

This shift is prompting institutional investors to reconsider their execution frameworks. While FX has long been traded electronically, the market is moving away from single-dealer platforms (using one institution’s liquidity) toward multi-dealer systems that access multiple providers simultaneously.

“We’ve always executed across multiple broker-dealers at the same time to obtain the best price for clients,” Feder says. “And we don’t use our own liquidity, which removes any potential conflict of interest and keeps pricing transparent.”

As a division of Mitsubishi UFJ Financial Group (MUFG), MUFG Investor Services has the security of a large bank’s balance sheet, while providing asset managers with FX overlay services. “A fiduciary doesn’t have the balance sheet to absorb financial risk,” he notes, underscoring the importance of institutional banking and the stability it provides to clients.

More significantly, there is growing demand for platforms to offer comprehensive services beyond basic execution. “Clients’ needs include FX hedging, cash management, cash sweeps, FX conversion, FX services for treasury, and they want those services embedded into a system,” Feder says.

To bring more cohesion to a traditionally fragmented process, MUFG Investor Services has introduced an FX solution that connects execution, hedging, and treasury functions through a unified framework. The approach is designed to simplify day-to-day operations, giving clients more visibility and consistency across their FX activity, while reducing the need to coordinate across multiple systems or providers. 

The Technology Evolution

The technological infrastructure underpinning these services has undergone dramatic changes in recent years. Legacy systems at many institutions are built on monolithic computer architectures and software that lack the flexibility required in today’s market environment.

MUFG Investor Services’ approach, according to Feder, relies on technology stacks built within the past five years. These systems are continually updated using the latest in programming paradigms and tools, unlike older legacy systems used by other firms that may be inflexible and expensive to update. Feder states. “What you want is flexibility, scalability, redundancy, and security.”

Modern cloud-based architectures allow for continuous updates and the ability to flex resources as needed. The firm uses technologies that enable automatic resource allocation and system redundancy, creating resilience that was unattainable with previous generations of financial technology.

Expanding Hedging Horizons

The current market uncertainty is causing investors to hedge currencies they previously may have overlooked. As Feder explains: “We’re seeing more NDF (Non-Deliverable Forwards) hedging particularly in currencies like the Indian rupee or Brazilian real,” Feder says. “In the past, many institutions avoided these because of the high carry costs, but the risk environment has changed.”

He notes that investors are now hedging previously stable currencies: “You see more traditionally low volatility currency pairs being hedged, such as Euro versus Danish krone and the Middle Eastern currencies and Hong Kong dollar versus USD. Historically, hedging these might not have been needed due to low volatility, but a market dislocation is suddenly now a real possibility.”

Feder points to the Saudi Arabian riyal as an example: Though its exchange rate has been fixed to the US dollar for decades without issues, today’s uncertainty has investors reconsidering this stability and choosing to hedge despite the additional cost.

This expanded scope adds operational complexity. “The more currencies you have, the more operational risk there is,” Feder acknowledges. For trusted partners like MUFG Investor Services, this means managing more variables while ensuring smooth execution across different time zones and liquidity conditions. Feder adds, “This is where our global footprint really helps, as our follow-the-sun model enables clients to access continuous, around-the-clock support across different time zones.”

Future Infrastructure Development

Looking forward, the firm is focusing its technological development on three key areas: integration, collateralisation solutions, and cash management.

Direct system integration to clients’ systems helps eliminate manual processes that can lead to errors and inefficiencies. “You want to connect directly to the client’s system—so the data goes in and out seamlessly, and they can see everything within their own platform,” Feder explains. This ensures clients have a real-time view of their FX positions without needing to manually import or reformat data.

For less liquid funds like private equity and real estate vehicles, collateralisation remains a significant challenge. “What we really spend a lot of time on now is coming up with more collateral solutions,” Feder says. This involves collaboration across different MUFG divisions to develop unique approaches, he says.

Finally, integration with cash management systems helps clients coordinate cash movements efficiently across their operations, reducing administrative burden and risk.

The Value Proposition

The core value proposition is simplicity for clients amid complexity. As Feder puts it: “What investors want is basically their FX hedging requirement to work and work seamlessly and efficiently. If there are no issues, there are no risks, and it’s simple. You don’t have to spend ages doing it.”

In a period of potential macroeconomic realignment and policy uncertainty, this approach would allow institutional investors to focus on core activities while transferring FX risk management to specialists with technological agility and balance sheet strength. By combining modern technology architectures with a seamless execution model and comprehensive service offering, firms like MUFG Investor Services are reshaping how institutional investors approach currency risk in an increasingly volatile global landscape.