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Cambridge Real Estate Research Centre

 

IPF Currency Risk The Unwanted Child

Currency Risk – The Unwanted Child: An IPF Report on Managing FX Exposure in Real Estate Investing

Real estate investors seeking the wider choice, increased liquidity and higher returns that may be achievable outside their domestic market are discovering the unwanted child of cross-border investment: currency risk.

In an increasingly globalised real estate investment market, the potential for exchange rate fluctuations to impact the returns on international investments deserves greater investor focus, according to a recently released IPF report.  In extreme cases, changes in exchange rates – which can be volatile and unpredictable – can dominate the real estate returns investors are seeking from their non-domestic investments.  The published study, conducted for the IPF by the University of Cambridge, analyses market practice in the management of currency risk and comes up with some blunt conclusions, including that some managers show a bias away from managing currency risk where hedging is costly and currency management may be used selectively to boost returns as much as to control risk.

Nick Mansley of the University of Cambridge research team said: “Managers and clients need to be clear and honest about who is managing currency risk, the approach taken to how currency risk is managed and what flexibility there is in this approach. The research highlighted the many considerations involved and the need for specialist expertise as well as recommending that the extent to which currency risk management has removed the impact of currency movement in line with expectations should be monitored on a regular basis.”

The full report; a summary of the report, Managing Currency Risk in International Real Estate Investment, and a two page At a Glance may be downloaded without charge from the IPF website: www.ipf.org.uk.

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