Over the past year, State Street has expanded its solutions delivery across several areas in response to client demand, evolving market conditions, and shifts in how institutional investors perceive and manage currency risk. The buy side drove significant change to its hedging programmes in support of new products and in reassessing the operational demands of managing more holistic FX needs within its investment vehicles.

Best FX overlay manager

State Street runs one of the largest currency overlay operations worldwide, with more than 5,600 active hedging accounts and $380 billion in assets under management as of the fourth quarter of 2025. Growth comes from supporting a diverse client base, including pension plans, asset managers and alternatives firms, many of which have sought additional support as their hedging needs increased.

As Steve Fenty, global head of currency management at State Street, puts it: “Volatility creates uncompensated risks … and any time a manager chooses to hedge, they’ll need to decide whether to support the overlay in-house or seek an outsourced partner.” This dynamic has driven growth in new, outsourced mandates but State Street also saw significant inflows into existing, hedged share classes or funds because of macroeconomic factors.

The past year brought elevated volatility, and the overlay team handled record trading volumes, including its largest single month on record. This coincided with more than 150 client change projects, supporting customers with strategy changes, counterparty expansions and new product launches. Continued growth in private markets and cross-border demand has also led to a natural rise in the need for currency hedging. “We’re seeing a lot of demand for alternatives,” Fenty says. “We support those customers by structuring hedges in a way that aligns with the liquidity of the fund.” This is often through staggered maturities, longer-dated tenors and programmes that smooth profit and loss settlement demands.

The core of the overlay business remains its agency-only execution framework, which separates it from principal-based models and provides clients with direct counterparty relationships and best-execution transparency. “Technology is key for scale,” Fenty explains. “You build the system for the most stressed scenario, plus a margin.” This approach proved essential when market activity spiked in April 2025, allowing a heavy flow of net‑present-value trades to be processed without disruption.

State Street has also pushed into onshore hedging for currencies such as the Indian rupee, the South Korean won and the Chinese yuan, offering an alternative to non‑deliverable forwards that can reduce collateral pressure and improve execution. Marco Naccari, State Street’s currency management global head of business development and client service, says investor attitudes towards hedging emerging markets (EM) are evolving. As with allocation to EM assets, managers face the challenge of dealing with currencies that offer scarcer liquidity and higher costs of carry. Proxy hedging has therefore become more widely used, although, as Naccari notes: “Correlations can break. And from time to time they break a lot.” This stresses the limits of proxy and imperfect hedges as well as the need for ongoing client dialogue and review.

Transparency and analytical insight remain central to the offering. State Street continued to enhance its customer-facing analytics platform with advancements in performance decomposition and trade oversight modules alongside internal order management and risk oversight tools. Naccari notes that clients increasingly expect “the instruments necessary to perform their own due diligence and demonstrate to regulators that they have control over the delegated parts”.

Best FX outsourced trading solution

State Street has also broadened its outsourced FX trading business, focusing on spot execution for investor activity, portfolio cash management, securities settlement and client-directed trading. It now supports nearly 1,400 accounts and more than $50 billion in annual trading volume across a range of client segments. Demand, Fenty says, “increasingly reflects clients’ desire to leverage external expertise and infrastructure in the execution process”.

A defining feature of the model is its integration with the currency overlay and cash management solutions, as well as State Street’s multi-asset partnered trading. The functions share systems, infrastructure, people, intellectual property and oversight within the same unit. This structure, Fenty argues, is designed to make the client’s oversight role manageable: “When clients choose to outsource, they move from a doer role to an oversight role, and we need to make their job easy.”