Risky business: Currency hedging is important, but it is not an exact science
Historically, the question over whether to hedge property portfolios against currency risk was largely left unanswered by real estate investors, given their tendency to favour investments in their home countries.
More recently, however, real estate has become increasingly globalised, driven by the world’s largest sovereign wealth and pension funds, many of which have dedicated worldwide real estate mandates. As a consequence, currency risk has become increasingly ingrained in investment decisions at an institutional level.
Foreign exchange movements can have a substantial impact on the performance of international real estate investments, as many Asian institutions have found recently. At a time when a number of them are growing more comfortable with moving from core to valued-add exposure as a perceived safer way to access the US market, “the rising currency hedging cost of these investments is presenting a roadblock,” wrote Hodes Weill partner Alfredo Lobo in a