The challenge
Uncertainty caused by FX fluctuations
Founded in 2017, Prisma Capital is a leading alternative asset manager based in Brazil. With a flexible mandate to generate attractive risk-adjusted returns across sectors and asset classes, Prisma Capital has $3Bn of assets under management.
In addition to its onshore Brazilian limited partners, Prisma raises capital internationally from offshore investors interested in Brazil. These offshore investors were exposed to fluctuations in FX rates during the period between capital being called, and when capital is returned via distributions, often leading to significant volatility in performance outcomes.
“We were experiencing situations where a strong local performance was offset by adverse FX movements, which was frustrating for us and our investors,” explains Gabriel Affonso Ferreira, Partner, and Chief Operating Officer of Prisma Capital. “We needed a robust solution for managing currency risk and maintaining our returns.”
“The solution had to offer a competitive credit line and pricing so we could direct as much capital as possible into our investments and continue generating high returns.”
The solution
Programmatic hedging with Non-Deliverable Forwards
To address this challenge, Prisma Capital partnered with Convera, a leading FX and commercial payments provider. The Convera team worked closely with Prisma to develop a currency risk strategy focused on programmatically hedging its net asset value (NAV) using Non-Deliverable Forwards (NDFs).
An NDF is a financial contract between two parties to settle the difference between a pre-agreed exchange rate and the actual spot rate on a future date, without exchanging the physical currencies. NDFs are an ideal hedging tool for currencies like the Brazilian real, which face trading restrictions, because they allow for cash settlement in a freely traded currency such as the USD.
“Working with Convera, we now systematically hedge 100% of our currency mismatches via NDFs,” says Ferreira. “And we adjust these FX hedges monthly according to internally updated NAV calculations.”
“In addition to their scale and expertise, Convera appealed to us because they offered an attractive credit line, minimizing the cash drag related to collateral that more traditional providers would require us to post for an FX hedging program.”
The results
Increased confidence amongst offshore investors
Prisma Capital’s partnership with Convera has transformed its approach to FX risk management. By programmatically hedging NAV, the firm is now safeguarding offshore investor returns and strengthening its global investment proposition.
“Feedback from our offshore investors has been positive,” says Ferriera. “They feel more secure about their USD returns irrespective of FX volatility, and they appreciate the transparency and consistency in returns. It’s helped us deepen relationships and attract new capital.”
“Overall, managing FX risk is critical to the successful implementation of our absolute return investment strategy. Convera’s competitive pricing and credit line mean we can hedge without tying up capital, minimizing the drag on the performance delivered to our investors.”
“The Convera team are incredibly collaborative, and we’re confident that our currency risk is being appropriately managed through a well-designed and well-executed hedging program,” Ferriera concluded.
Overall, managing FX risk is critical to the successful implementation of our absolute return investment strategy. Convera’s competitive pricing and credit line mean we can hedge without tying up capital, minimizing the drag on the performance delivered to our investors.”
Gabriel Affonso Ferreira
Partner and Chief Operating Officer, Prisma Capital
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