Investment restriction
Currency hedge ratio
A currency hedge ratio is the share of a portfolio's exposure to one foreign currency that hedging instruments offset, usually forward contracts. Policies set it as a floor, a range or a cap, such as ‘hedge between 50% and 100% of US dollar exposure’. Acclimetry divides the hedge exposure in that currency by the other holdings in it and tests the result against the approved band.
hedge_ratioCurrency hedge ratio
How policies word it
Hedging clauses appear wherever a portfolio holds assets priced in other currencies, as in many family-office and charity policies. They name the currency, the instruments and the band.
Three forms are common:
- A floor: at least 75% of US dollar exposure is hedged back to sterling.
- A range: euro exposure is hedged between 50% and 100%.
- A cap: hedges may not exceed 105% of the exposure they cover, which stops over-hedging.
Many policies set the ratio per asset class, such as ‘overseas bonds fully hedged, equities unhedged’. This template measures the whole exposure in one currency. A sleeve-level clause therefore needs that sleeve held as its own portfolio, or a recorded decision on how it is tested.
- Hedge at least 75% of US dollar exposure back to sterling.
- Euro exposure will be hedged within a range of 50% to 100%.
- Currency hedges must not exceed 105% of the exposure they hedge.
- Overseas bond holdings are fully hedged to the base currency; equity holdings are unhedged.
How it is measured
The ratio is the absolute hedge exposure divided by the underlying exposure in the same currency. Only positions recorded in the named currency count, on either side.
- Hedge exposure: positions in the declared hedging classes, such as FX forwards, swaps or options. Each counts at its delta-adjusted notional if the feed states one, otherwise its notional, otherwise its market value.
- Underlying exposure: every other position recorded in that currency, at absolute market value.
The notional matters: a new forward is worth close to nothing, so a ratio of market values would show almost no hedge. In one worked example, a forward worth 10 with a 1,000 notional and a 0.5 delta counts as a 500 hedge.
The result is a percentage, with headroom to the nearest bound and the hedges as top contributors.
When it is breached and what follows
Below the hard minimum the currency is under-hedged; above the hard maximum it is over-hedged. Warning bounds inside the hard bounds flag drift early, and a stated tolerance absorbs small differences.
Hedge ratios drift between rolls: when the hedged assets rise, a fixed forward notional covers a smaller share. Many breaches are therefore passive.
A rule version can carry a grace period in days. The result is a breach from the first observation and the case opens at once, but its clocks start when the grace ends.
Continuing breaches are grouped into one case, with assignment, escalation and service-level clocks. An approved, time-bound waiver can cover a planned gap, such as a delayed roll, without changing the result. Proposed hedge trades can be checked against the same rule in Trade Impact before execution.
Data the check reads
- The currency code each position is recorded in
- Each position's asset class, to tell the declared hedging classes from the underlying
- Market values for every position in the currency (one missing value stops the reading)
- Delta-adjusted notional or notional for derivative hedges, where the feed states them
Rule parameters
The share of a currency's underlying exposure offset by the declared hedging instruments must stay inside the approved band.
| Parameter | In the platform | Options and help |
|---|---|---|
| currency | Currency code | The currency whose exposure is being hedged, e.g. USD. |
| hedgeClassNames | Hedging classes | Classes whose positions count as the hedge (forwards, swaps, options). |
Methodology choices
- Hedge ratio = |hedge exposure| / underlying exposure in the same currency.
Parameter names, methodology text and result-code meanings are shown exactly as the platform states them.
Worked examples, run by the engine
A forward worth 10 with a 1,000 notional at delta 0.5 hedges 500 of 800 — 62.5%, under a 70% floor
Rule template:hedge_ratio currency: USDhedgeClassNames: FX Forwards
Bounds: hard min 70%
| Holding | Class | Currency | Long / short | Market value | Notional | Delta | Delta-adjusted notional |
|---|---|---|---|---|---|---|---|
| US1 | Stocks | USD | – | 800 | – | – | – |
| FWD | FX Forwards | USD | short | -10 | 1,000 | 0.5 | 500 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| USD hedge ratio | Breach | 62.5% | ≥ 70% | -7.5% | BELOW_HARD_MINIMUM |
BELOW_HARD_MINIMUM: The measured value falls below the approved hard minimum, beyond any stated tolerance.
Largest contributors: USD hedge ratio → FWD 62.5%
These are the product's own test cases for this template, evaluated by the Acclimetry rule engine (backend commit 8197063). The build fails if any result changes.
A 600 forward against 800 of USD assets hedges 75%, meeting a 70% floor
Rule template:hedge_ratio currency: USDhedgeClassNames: FX Forwards
Bounds: hard min 70%
| Holding | Class | Currency | Long / short | Market value |
|---|---|---|---|---|
| US1 | Stocks | USD | – | 800 |
| FWD | FX Forwards | USD | short | -600 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| USD hedge ratio | Compliant | 75% | ≥ 70% | 5% | WITHIN_LIMITS |
WITHIN_LIMITS: The measured value sits inside every approved bound.
Largest contributors: USD hedge ratio → FWD 75%
These are the product's own test cases for this template, evaluated by the Acclimetry rule engine (backend commit 8197063). The build fails if any result changes.
A 400 forward against 800 of USD assets hedges only 50%, under a 70% floor
Rule template:hedge_ratio currency: USDhedgeClassNames: FX Forwards
Bounds: hard min 70%
| Holding | Class | Currency | Long / short | Market value |
|---|---|---|---|---|
| US1 | Stocks | USD | – | 800 |
| FWD | FX Forwards | USD | short | -400 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| USD hedge ratio | Breach | 50% | ≥ 70% | -20% | BELOW_HARD_MINIMUM |
BELOW_HARD_MINIMUM: The measured value falls below the approved hard minimum, beyond any stated tolerance.
Largest contributors: USD hedge ratio → FWD 50%
These are the product's own test cases for this template, evaluated by the Acclimetry rule engine (backend commit 8197063). The build fails if any result changes.
A hedge with no underlying exposure in its currency is not a ratio — Not Applicable, never a pass
Rule template:hedge_ratio currency: USDhedgeClassNames: FX Forwards
Bounds: hard min 70%
| Holding | Class | Currency | Long / short | Market value |
|---|---|---|---|---|
| FWD | FX Forwards | USD | short | -600 |
| GB1 | Stocks | GBP | – | 1,000 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| USD hedge ratio | Not applicable | – | ≥ 70% | – | NO_UNDERLYING_EXPOSURE |
NO_UNDERLYING_EXPOSURE: No underlying exposure was present to measure the hedge against.
These are the product's own test cases for this template, evaluated by the Acclimetry rule engine (backend commit 8197063). The build fails if any result changes.
A forward with a 780,000 notional against 1,000,000 of US dollar holdings hedges 78%: above the 75% floor, inside the 80% warning bound.
Rule template:hedge_ratio currency: USDhedgeClassNames: FX Forwards
Bounds: hard min 75% · warn min 80%
| Holding | Class | Currency | Market value | Notional |
|---|---|---|---|---|
| US equity fund (USD class) | Equities | USD | 600,000 | – |
| US Treasury 2030 | Bonds | USD | 400,000 | – |
| Sell USD forward, 3 months | FX Forwards | USD | -4,000 | 780,000 |
| UK equity fund | Equities | GBP | 900,000 | – |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| USD hedge ratio | Warning | 78% | ≥ 75% warning ≥ 80% | 3% -2% to warning | BELOW_WARNING_MINIMUM |
BELOW_WARNING_MINIMUM: The measured value has crossed the early-warning minimum but not the hard limit.
Largest contributors: USD hedge ratio → Sell USD forward, 3 months 78%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
Interpretation traps
Market value understates a hedge
A forward's market value is its unrealised gain or loss, not its size. Supply delta-adjusted notional or notional for every hedge. A hedge that states neither is measured at market value, and the result says so.
The denominator is the whole currency
Every non-hedge position recorded in the currency is underlying exposure. The template reads the recorded currency, not that of the underlying assets; the currency exposure band can read an economic currency.
A hedge with nothing to hedge is not a pass
If the currency holds only hedges, the result is not applicable (NO_UNDERLYING_EXPOSURE), never compliant. A forward left open after the assets were sold is an open currency position.
Class names decide what counts as a hedge
Only positions in the declared hedging classes count as the hedge. A forward booked under another class is read as underlying exposure, which distorts both sides of the ratio.
Result codes this check can return
| Code | State | Meaning | What to do |
|---|---|---|---|
| WITHIN_LIMITS ✓ | Compliant | The measured value sits inside every approved bound. | – |
| ABOVE_WARNING_MAXIMUM | Warning | The measured value has crossed the early-warning maximum but not the hard limit. | No breach yet; the early-warning band exists so the position can be managed before one. |
| BELOW_WARNING_MINIMUM | Warning | The measured value has crossed the early-warning minimum but not the hard limit. | No breach yet; the early-warning band exists so the position can be managed before one. |
| ABOVE_HARD_MAXIMUM | Breach | The measured value exceeds the approved hard maximum, beyond any stated tolerance. | Remediate the exposure, or record an approved waiver against the case. |
| BELOW_HARD_MINIMUM ✓ | Breach | The measured value falls below the approved hard minimum, beyond any stated tolerance. | Remediate the exposure, or record an approved waiver against the case. |
| CONSERVATIVE_MISSING_DATA | Breach | Data was missing and this rule version's approved unknown-data policy is conservative_breach, so the gap is treated as a breach rather than as Not Evaluated. | Supply the missing values; the reading is deliberately pessimistic until you do. |
| EMPTY_PORTFOLIO | Not applicable | The portfolio held no positions at the evaluation moment. | – |
| NO_EXPOSURE_IN_CURRENCY | Not applicable | The portfolio held nothing in the currency this band measures. | – |
| NO_UNDERLYING_EXPOSURE ✓ | Not applicable | No underlying exposure was present to measure the hedge against. | – |
| NOT_IN_SCOPE | Not applicable | This rule version does not apply to this portfolio — the portfolio is outside the version's stated scope. Recorded so that "considered and out of scope" can be told from "never run". | – |
| AGGREGATE_MEMBER_NOT_ACCEPTED | Not evaluated: data quality | A portfolio in the measured set has no authoritative snapshot, so the set-level number cannot be stated. | Accept the named portfolios' snapshots. A partial set produces no aggregate. |
| MISSING_POSITION_DATA | Not evaluated: data quality | One or more positions had no readable value, and the partial numbers do not prove the outcome either way. | Supply the missing valuations. The platform will not fabricate a zero to produce a reading. |
| SNAPSHOT_NOT_ACCEPTED | Not evaluated: data quality | The portfolio's newest snapshot awaits data-quality review; only accepted data may produce an authoritative result. | Accept, override or reject the snapshot on Data & Quality. |
| SNAPSHOT_REJECTED | Not evaluated: data quality | The portfolio's newest snapshot was rejected, so there is no authoritative data to measure. | Load a corrected file. |
| STALE_POSITIONS | Not evaluated: data quality | The newest snapshot is older than the organisation's staleness threshold. | Load current positions, or revisit the threshold on Data & Quality ▸ Policy. |
| STALE_PRICES | Not evaluated: data quality | A holding had no price on the position file and its approved price was older than the organisation's price-staleness threshold, so it was left unvalued. | Load a current price for the holding, price it on the position file, or revisit the threshold on Data & Quality ▸ Policy. |
| AWAITING_EXTERNAL_DATA | Pending external data | An approved input is late but still inside the organisation's grace window. This is not a pass and not an exception. | None yet. If the delivery does not arrive, this becomes a data-quality exception. |
| METHOD_NOT_SUPPORTED | Not evaluated: unsupported | The rule version asks for a measurement method this engine does not implement. Declared rather than approximated. | Choose a supported methodology, or treat this limit as a manual obligation until the method ships. |
| EVALUATOR_ERROR | Not evaluated: system error | The evaluator raised an error. Surfaced as a visible result rather than as silence. | Report it. A system error is never a pass and never a compliant reading. |
✓ seen in the worked examples. The rest come from the platform registry’s own scan of the template source.
Regulatory analogues
- AIFMD commitment method: when a hedging arrangement may be netted (Article 8)
- Pension schemes: derivatives only to reduce risk or for efficient portfolio management (2005 Regulations, reg 4)
Acclimetry evaluates one currency per rule: declared hedges, at delta-adjusted notional, notional or market value, over the other holdings recorded in that currency. It reads each position's recorded currency; it does not derive economic currencies, look through funds or limit the underlying to one class. It does not price forwards, plan rolls or recommend hedge trades.
Questions
Should a hedge ratio use market value or notional?
Notional, delta-adjusted for options. A forward's market value is only its unrealised gain or loss, so it understates the hedge. Acclimetry falls back to market value only when no notional is stated.
Does a 100% hedge ratio remove currency risk?
Not entirely. The ratio compares a fixed hedge with assets whose value moves, so the share covered drifts until the hedge is resized or rolled.
How does this differ from a currency exposure band?
A currency exposure band limits a currency's weight in the portfolio, optionally after netting hedges. A hedge ratio limits the share of that currency's exposure that is hedged.
Sources
- Commission Delegated Regulation (EU) No 231/2013, Article 8 (commitment method), UK version · OGL v3.0 · Read on12 October 2026
- Occupational Pension Schemes (Investment) Regulations 2005, regulation 4 · OGL v3.0 · Read on12 October 2026