A more volatile trading environment is exposing a segment of businesses that are currently being under-served by FX service providers, claims Moises Michan, a managing partner at Tanridge Capital.
“I think that when you start looking into these higher volatility environments is when you start having treasurers and heads of family offices realising that they’re not FX experts, there’s a lot of mechanics a lot of input going into the FX market, and they do have exposures,” he says.
Michan says that Tanridge Capital is focusing its efforts on providing FX asset management services for small- to medium-sized institutions that don’t meet the client requirements of the big banks.
There is a natural need for a lot of these people to trade FX. What happens with a lot of these larger institutions is that the smaller- to medium-sized institutions don’t meet their criteria, mostly on the terms of AUM or on ticket size. “To be very straight forward, [the large institutions] can’t be bothered,” he says.
In contrast, Michan sees an opportunity in what he describes as a client base that is “a much bigger pool in numbers, and probably numbers of assets”, but that is strategically and logistically a harder market to capture.
Giving a specific example of one such client, Michan points to an Argentinean firm that Tanridge works with that is involved in local microfinance.
“It’s a tough market, a non-deliverable market, there’s capital controls out of Argentina,” he says, adding that this client knows that they need to hedge their FX, but isn’t sure how to go about it in the most effective way.
“He knows very well how to target his business, micro-lending to certain businesses, etc, converted dollars over to Argentine peso. However, this client hasn’t been able to get that FX hedge, which would be an NDF in this case.
“So what he’s been doing is placing money directly into a local Argentine bank, what he’s been able to get is a 20% deposit rate annually. However, his currency devaluation has been 40%, so hence him coming over to us,” he says.
Michan adds that firms such as this one realise that they have FX exposures eating away at their margins, but that they’re too small to go to a bank or large hedge fund with this problem.
You can watch the full interview here: