Overlay Management

Staying on Track with Overlay Management

Overlay Management Concepts: individual, modular and proven

Every investor has their own unique investment strategy and their own unique approach to strategic asset allocation (SAA) and their own preferred driving style.

The portfolio management team has competently, professionally and successfully steered overlay mandates on the ideal line for more than 20 years, using a tailored overlay approach proven in diverse market environments. Overlay concepts are available specifically as FX Overlay, as well as in modular form as Risk Overlay and Risk OverlayPLUS.

Overlay mandates under management (on your platform of choice as well as outsourced overlay management as an administrative KVG) total 38 billion euros. In order to stabilise portfolio performance, Universal Investment provides a comprehensive management of equity-, interest-rate-, currency- and spread-related (optional) risks, using derivatives in a separate overlay sub-segment. As a Master KVG, Universal Investment has an overview of the fund, including, for example, its FX exposure (as of December 2021).

Overlay Management Approaches


Risk Overlay: System

Each overlay mandate is tailored to the investor's specific requirements

  • The opportunity to participate in positive market developments, as well as to mitigate the effects of negative developments (defending the lower limit)
  • The chance to react quickly and flexibly to market risks
  • Risk monitoring of individual securities – including outsourced overlay management through an external asset manager (KVG)
  • Modularity: separate budgets for different risk types
    • The main risk categories: equity-, interest-rate- and currency-related risks
    • Non- or only partly-manageable risks, including, for example, spread and overnight risks
    • Dynamic risk budgeting by means of tactical signals (Risk OverlayPLUS)
  • Assessment of different asset classes, risk categories and overlay specifications
    • Hedge quality, risk allocation, risk budgeting
    • Regulatory and governmental guidelines
  • Management of risk categories either individually or as a whole
  • The tailored overlay is underpinned by a customised software solution


Risk Overlay: Effectiveness

A modular overlay approach – hedging only where necessary

  • Allows a customised approach through modular concepts
    • Separate management of multiple risk categories from Risk Overlay to Risk OverlayPLUS
  • Consistent risk overlay process tailored to various risk categories
    • Targeted use of derivatives: derivatives hedge risk categories rather than asset classes
    • Reduces the tendency of a pro-cyclical reaction by making anti-cyclical risk budget transfers between individual budgets (Risk OverlayPLUS)
    • Diversifies where appropriate and hedges risks where necessary
    • Reduces the likelihood of an expensive full hedge
  • Increases risk transparency, for example through performance by risk category

Tactical Signals

Risk OverlayPLUS: Tactical Signals

Overlay control logic is fine-tuned to tactical signals

  • Can be used irrespective of the signal provider
    • Successful cooperation with Vescore by Vontobel Asset Management for more than 10 years
    • Tactical signals play a fundamental, active role
  • Fine-tuning in key overlay levers
  • Performance harvesting through signal-dependent limits for risk budgets
  • Anti-cyclical, tactical re-entry into the market through signal-based budget release
  • Intelligent risk budget allocation through tactical signals

Tactical Signals – Simulations

Risk OverlayPLUS – Tactical signals Vescore by Vontobel

There are several reasons for going off track with a portfolio. And there is a tried-and-tested way to stay on track. The following simulations of 2020 and 2021 based on Strategic Asset Allocation (SAA) illustrates what this can look like: 40% global equities, 60% bonds (government bonds) Euroland, USD-EUR hedge, 8% risk budget, hedging via index futures.

Simulation: Performance 2021 with and without Risk OverlayPLUS
  • SAA with Risk OverlayPLUS: optimal hedging of downside risk and timely reentry into the market
  • Bonds: minor difference in performance due to hedging in summer
  • Equities: benchmark performance was achieved 100%
  • Upward and sideways market: no effect on SAA with Risk OverlayPLUS
Simulation: Performance 2020 with and without  Risk OverlayPLUS
  • SAA clearly crosses the lower limit of 92% in March 2020
  • Risk OverlayPLUS holds the lower limit: Outperformance through hedging and timely reentry


Please note: opportunity costs may be incurred when using an overlay. There is no guarantee that the lower limit will always be maintained. Past performance is not a benchmark for future performance.

Currency Hedging

FX Overlay: Currency Hedging

Enabling investments in global equity and fixed income markets while limiting the influence of unintended currency bets on performance is the responsibility of FX Overlay management. Universal Investment positions its currency hedging product in a separate overlay sub portfolio which stands apart owing to its best-execution competitive trading and reduced cash requirements.

In addition, the administrative Master KVG vehicle provides a holistic overview of the entire currency exposure in a master fund, thereby considerably facilitating FX Overlay management.

Video Interviews

Manuel Stratmann and Glenn Marci, Senior Portfolio Managers Overlay & Quant Models at Universal Investment-Luxembourg S.A., Frankfurt branch describe the characteristics of our three overlay approaches.

White Paper

Overlay approaches come in several forms

Universal Investment’s portfolio management team presents the different aspects of overlay management.


Overlay Management

Good to know.

Thought-provoking interviews and product information on the theme of overlay management.

Overlay Management Interview VescoreInterview: 10 years of partnership with vescore by Vontobel, 10 years of Risk OverlayPLUS
Overlay Management Interview Peter KlöcknerTim Habicht interviewed Peter Klöckner and Manuel Stratmann on overlay management 


Let's discuss which overlay approach best suits your investment strategy and strategic asset allocation. We look forward to sharing ideas with you.

Markus Neubauer

Managing Director

+49 69 71043 102

Marcus Kuntz

Marcus Kuntz

Area Head Sales & Fund Distribution

+49 69 71043 190

Jochen Meyers

Jochen Meyers

Area Head Relationship Management Institutional Investors

+49 69 71043 460


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