Losses Related to Foreign Currency Hedging

Middlesex Retirement System v. Boston Safe Deposit and Trust Company et al

CFP’s Dr. Noah worked with defendant Mellon Financial Corp. and counsel to analyze losses related to a foreign currency overlay program implemented by a third party manager hired by Middlesex Retirement. We provided daily value calculations for a portfolio of hundreds of bilateral purchased and written foreign currency options contracts. Our analysis included calculation of portfolio sensitivities to market conditions as well as identification of periods of improper trading behavior given basic hedging concepts and written trading guidelines provided to the manager. Our work both measured historical losses as they occurred and allowed our clients to see exactly when improper trading took place. Additionally, we estimated total trading costs and compared these costs to those of a properly implemented hedging program. The case settled prior to trial.