Institutional Investors and Asset Managers

Institutional investors include pensions, mutual funds, hedge funds, family offices and other enterprises investing on behalf of others. The institutional investor purchases and sells rate optimization instruments to maximize returns on their portfolio, to manage risk, and in some cases to isolate specific returns from an investment. For example, a fund might find the current floating interest rates for a Norwegian bond attractive, but wish to stabilize the return through a floating-for-fixed swap, and remove the currency risk by swapping the NOK coupon for USD.

Asset managers may also use interest rate derivatives in conjunction with currency trades to protect their base currency returns, against which their performance is attributed. Institutional investors will typically trade vanilla and basis swaps, with occasional use of other instruments to meet specific investment strategies. Caps, floors and collars will be purchased to lock in specific returns or hedge downside risk.