Currency volatility, typically a consideration associated with emerging markets investing, has become harder for global private equity participants to ignore this year.

The euro and Japanese yen sank to 20-year lows against the US dollar in September; the British pound, meanwhile, fell to an all-time low.

These vicissitudes have had a mixed impact on the private markets. As Private Equity International explored in its ‘Currency chaos’ mini-series this week, currency depreciation relative to the dollar has limited commitment pacing among Japanese institutions; prompted some LPs to seek more hedging options from their sponsors; and presented buying opportunities for US private equity funds.

“Assets are cheap in dollar terms,” Jean Salata, chairman of EQT Asia and head of BPEA EQT (formerly Baring Private Equity Asia prior to its merger with EQT on Wednesday), tells PEI. “But I think that it is a kind of a short-term dislocation, which can be interesting maybe as a one-off, and it does make assets a little bit more interesting.”

Of course, private equity is a long-term game – investment decisions span years, rather than weeks or months, and the timing or nature of an exit can be hard to predict. A cheap entry price is no guarantee of a currency gain five years later.

Although there are a variety of hedging options available for LPs and GPs alike, Hamza Azeem, a principal in Hamilton Lane’s evergreen portfolio management team, told us these tools should be used pre-emptively, rather than opportunistically. “[Otherwise] you only get alerted to it when things are not in your favour.”

Given, then, that currency fluctuations aren’t predictable enough to factor into an investment thesis, industry participants could be forgiven for not paying them much heed. There may, however, be passive benefits that should not go ignored.

“The tech services deals that we do involve… selling services to US clients in dollars,” Salata noted. “Even in Japanese companies that are export in nature, if they’re going to be selling services abroad that does actually help the competitive position of those businesses. So that’s something that structurally, particularly in India… is a tailwind, because that’s a sort of steady cost advantage that’s maintained through lower cost base of wages in the country.”

Clearly, currency volatility has the potential to cause both near-term pain and gain in private equity. While it’s unlikely to lead to any long-term strategic repositioning of portfolios, those in a position to take advantage of the associated opportunities – either passively or actively – may find it a welcome shot in the arm at a time when many businesses are facing economic pressures on multiple fronts.