FX Hedging Estimator

Estimate the cost drag of currency hedging on a USD investment for GCC base currencies.

Hedge Drag

Local Net IRR

The GCC Currency Peg

Most GCC currencies are pegged to the US Dollar. As a result, many LPs choose not to hedge their USD exposure, accepting the peg risk instead of paying the rolling forward contract costs.

However, for certain institutional mandates (or for the KWD, which is pegged to a basket), hedging is required. The cost of this hedge (driven by interest rate differentials between the US and the local interbank rate) creates a direct drag on the achieved IRR.

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