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 U.S. institutional investors, ravaged by a strengthening dollar,
have turned to global currency specialists to strip out the
greenback's effect on their portfolios and at the same time,
generate additional return.
Many in the currency management industry are benefiting, from funds
owned by custodian banks such as State Street to forex specialists
and small firms such as those managed by industry veteran John
Taylor, who once ran the largest currency hedge fund in the world.
The latest figures made available to Reuters by institutional
investment data analytics firm eVestments showed total inflows to
currency asset managers in 2015 were $8.7 billion through September,
compared with $4.9 billion for the same period in 2014.
"Most shops doing a decent job are growing right now, especially
with this new demand from U.S. investors," said Colin Crownover,
head of global currency management at Boston-based State Street,
which has $2.4 trillion in assets under management.
Managers tend to hedge between 50 percent and 70 percent of
international portfolios against a further rise in the dollar. They
do this through buying a corresponding short forward contract in a
currency a fund may be invested in, such as the euro. Currency
managers benefit when they recognize market shifts and act quickly.
State Street's currency assets under management stood at $125
billion as of this week. Its assets have been growing at a 12-month
trailing average of 12 percent, Crownover said.
The industry struggled for a few years as global central bank action
kept interest rates low and currencies stuck to narrow trading
ranges.
There have been several casualties in the currency hedge fund
industry. Taylor was forced to shutter his FX Concepts fund in 2013
and filed for bankruptcy. Brevan Howard and QFS Asset Management
were also among asset managers that shut their currency funds amid
losses.
Volatility has returned to markets as the Federal Reserve has moved
closer to raising interest rates, while the European Central Bank
embarked on a massive asset-buying program.
One-month volatility in the euro/dollar currency pair rose to as
high as 15 percent last July, from just 4 percent in the summer of
2014. That uncertainty is what has spurred managers to seek help
from currency experts.
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Clients of Adrian Lee & Partners, a London-based quantitative
currency manager overseeing $6 billion in assets, have given the
firm 50 percent more of their assets to manage, said Adrian Lee, the
firm's president and chief executive officer.
"Our pipeline or the people we're actually talking to is bigger than
I have ever seen, with about 25-30 names," said Lee.
Millennium Global, a UK-based forex manager, has snagged $3.5
billion in inflows so far this year, pushing its assets under
management to $16 billion at the end of October, said Mark Astley,
chief executive officer.
Even Taylor, whose FX Concepts once had $14 billion in assets at its
peak, has resurfaced, managing about $150 million, he said. His new
firm is called FX Concepts News, which is also a research and
advisory service.
Despite past struggles, Taylor has become a sub-manager for other
hedge funds' currency portfolios and has a $50 million-credit line
that he can use, he said.
"The environment right now is spectacularly good because the
governments have their hands in the market and they're making a
complete mess of it," said Taylor. His most profitable trade has
been shorting the Chinese yuan, Brazilian real and Mexican peso.
Returns have not been shabby. A broad index of currency fund
performance - BarclayHedge Currency Index - was up 3.4 percent in
the year to October, continuing a positive trend since 2007,
BarclayHedge data showed.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
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Currency
managers see brisk business with soaring U.S. dollar
