Spectra implements a FX Hedging Strategy to Protect an Acquisition of a LATAM Portfolio of Assets
The Client
Spectra Investments is a large investor in the alternatives space in Brazil and Latin America, and they have the largest AUM among Latin American alternatives Fund of Funds.
Spectra offers sophisticated investors access to multiple strategies, through balanced funds, mitigating costs and risks.
Its portfolios are hybrid, investing in Growth, Buyout, Venture Capital, Distressed, Legal Claims, Mining, Search Funds, and Special Situations, amongst others in the region.
Key Takeaways
Managing FX risk across multiple LATAM currencies and complex collateral requirements.
Acquisition involved diverse currencies, investment maturities, and jurisdictions, increasing FX complexity.
High LATAM currency volatility could materially affect portfolio value over the investment lifecycle.
BRL funds were converted to USD and transferred to an offshore SPV.
Assets were held for two to three years in a specific local LATAM currency.
Proceeds were converted from local currency to USD and back into BRL.
Methodology
- Initial Assessment
An initial call defined currency exposures, investment horizon, and portfolio-specific hedging requirements.
- Strategy Simulation
Multiple FX hedging structures were tested using Monte Carlo simulations to identify optimal portfolio strategies.
- Provider and Pricing Review
Payment providers were evaluated to secure competitive pricing and confirm tradability of emerging market derivatives.
- Forward Curve Modeling
FX forward curves were built to optimize tenors, maximize positive carry, and minimize hedging impact.
Results
- Strategy Comparison and Decision-Making
Violin plots were used to compare strategy performance, enabling informed selection and internal approval.
- Liquidity and Credit Facility Structuring
Counterparties ensured liquidity and provided an unmargined credit facility without tying up investor capital.
- Counterparty Selection
A counterparty was selected offering unsecured credit lines and competitive fixed spreads after credit review.
- Ongoing Monitoring and Reporting
Deaglo’s reporting tools enable tracking of hedge positions, ratios, costs, and data timing.
