If a PE firm is exploring an investment in a high quality project but in a country with substantial currency volatility, how do they typically hedge such risk? What kind instruments do they use? Can they just purchase an option from local financial institutions to purchase USD at a fixed rate over the next few years? Where can I read up more on this?
There's a general understanding that the country's currency will lose value over time.
| +36 | Starting own PE fund as a student | 11 | 3s | |
| +30 | Thoughts on Bain Capital and Warburg Pincus special sits groups? | 20 | 5h | |
| +27 | Late sending case study | 7 | 7h | |
| +27 | Prep On Cycle or Travel | 27 | 2s | |
| +26 | Would my background make me a good fit for Infra PE? | 9 | 3d | |
| +25 | Me bitching... A Rant. | 3 | 2d | |
| +24 | Sourced company -- now what? | 17 | 20h | |
| +21 | PE HH Intro Calls Starting | 23 | 1d | |
| +19 | Why is Steve Schwarzman still CEO | 31 | 4h | |
| +19 | Is Investing a Skill? | 9 | 4h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
goes both ways - hedging can be very expensive. i had a prior internship in EM PE and for some deals we'd hedge and some we'd just go in naked - currency movements will then become a point of analysis in your periodic investment reviews
Currency hedging for certain EM currencies can be very expensive, one way to deal with it is to assess the full impact of fluctuations on the project and its returns and then price the offer accordingly (e.g. aim for a USD IRR assuming a certain annual depreciation)
Labore aut quos amet repudiandae. Praesentium consectetur totam aperiam tempore odit similique est qui. Est necessitatibus nihil quisquam hic est explicabo ut. Dolorem ullam cum est tempora cupiditate quia omnis illum. Quam facere accusantium eius explicabo. Dignissimos magni qui iusto inventore necessitatibus. Modi quam iusto blanditiis magni quae cumque.
Amet quas et eius labore quam veniam quia. Molestiae harum ad voluptatibus porro blanditiis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...