Northern Trust has announced it has been appointed by Hermes Investment Management to provide currency management services for its Irish fund range. The bank’s service comprises portfolio overlay, share class hedging and ‘look through’ hedging solutions to help asset managers and asset owners manage and mitigate currency volatility, while actively supporting distribution strategies. It adds […]
Tag: currency management
In this week’s podcast Galen Stops explains the devil in the detail behind the SEC rejecting bitcoin ETFs, the changing market structure in crypto generally, and how market participants are going about institutionalising the new asset class.
Colin Lambert meanwhile, is in a punchy mood and wants to take everything and everybody to task.
They observe how crypto-strategists are just the same as fiat strategists; discuss the barriers to entry for currency managers; the pricing of credit and liquidity in FX; and Lambert in particular has a problem with investors’ approach to allocating to hedge funds.
Mesirow Financial has agreed to acquire assets of The Cambridge Strategy (Asset Management) (TCS) a UK-based currency alpha investment firm.
TCS was co-founded by Peter Henricks, CEO, and Russell Thompson, CIO, in 2003, and offers currency alpha strategies for return-seeking investors. Headquartered in London with offices in Hong Kong and Monaco, TCS has over $3 billion in assets under management in passive and active strategies.
The TCS team will be incorporated into Mesirow’s existing global currency team, all reporting to Hoffman.
Even when implementing passive currency hedging strategies, it’s still important to think in terms of alpha, explained Jay Moore, a senior vice president at Brown Brothers Harriman (BBH), during a panel discussion at the Profit & Loss Forex Network New York conference.
Although this might initially seem to be a contradictory statement, Moore explained that providers of passive hedging services can differentiate themselves both through risk management and what he termed “operational alpha”.
While portfolio risk obviously isn’t a concern when implementing passive currency strategies, Moore explained that there is a strong focus on managing other types of risk, such as regulatory risk, operational risk and managing the fiduciary risk that managers have on behalf of the funds that they outsource to firms that are providing the passive hedging.
Northern Trust is partnering with Lumint Corporation, a provider of currency management services, to enhance its suite of FX solutions for asset managers and asset owners globally.
With this partnership Northern Trust is aiming to strengthen its platform for currency hedging, including portfolio overlay, share class hedging and look-through hedging. The banks says that the partnership will also help support further innovations in hedging program management and analytics to meet the evolving needs of global investors.
“Northern Trust is committed to delivering best-in-class foreign exchange services and we are excited to announce this strategic partnership with Lumint for currency hedging. This enables us to offer a differentiated and innovative solution to our clients who are looking to delegate their hedging needs and benefit from our expertise, coupled with Lumint’s powerful tools and technology,” says John Turney, global head of FX at Northern Trust Capital Markets.
Philippe Bonnefoy, founder of Eleuthera Capital, explains why the FX industry suffers due to a lack of an effective industry benchmark.
Bonnefoy discusses why the 4pm Fix can be beneficial, but points out that it also suffers from potential gaming. He then adds that benchmarking remains a huge issue for investors trying to work out whether they should consider FX as an asset class or not.
“With an equity benchmark, you know what the index is doing, for fixed income you know what the composite bond or the bond benchmark in 10-year Treasury is. For FX, is it cash? Is it a three-month yield? Is it overnight pricing? How do I say that you created value for me in trading FX other than just saying whether you were positive or negative?,” asks Bonnefoy.
Adrian Lee, president and CIO at Adrian Lee & Partners, explains why combining currency hedging with alpha generating strategies can benefit investors.
When questioned about whether clients are looking for hedging or alpha from currency managers, Lee responds that many clients actually need both simultaneously.
He continues: “The challenge of risk management is that currencies are a biggish risk – there’s no long-run return really, so on paper it makes sense to reduce it. But when you start to do these hedges after you’ve got the international assets, you’ve got to get the currency exposure back… with that [you have] really strong cash flows because if you hedge half your 20% international, it’s 10% of your whole portfolio. If that goes against you [the impact on] performance in a quarter could be massive.”
Institutional investors have long understood the value of diversifying their portfolios, and this usually means investing internationally.
But when they buy foreign equities, they’re actually buying two portfolios, the first being the long equities denominated in their base currency, and the second is that they’re shorting their base currency against the foreign currency they need to purchase the equity.
This presents institutional investors with a choice: they can do nothing and accept the risk of holding this foreign currency, hedge that currency exposure passively or manage it actively.
Michael DuCharme has joined Mesirow Financial as director, currency solutions within its currency management business, which provides custom risk solutions, ranging from passive to active currency risk management.
He joins from Russell Investments, where he spent 17 years focused on trading systems and processes. Most recently, he was head of currency strategy, helping clients develop strategies to reduce their FX transaction costs while minimising risk. DuCharme started his career as an engineer, including a tour of duty as a civil engineering officer in the United States Air Force.
Mesirow Financial, has appointed Joseph Hoffman as CEO of its currency management business.
The firm says Hoffman, “strengthens the team with his proven success of providing objective, strategic advice to implement best practice currency risk programmes for clients’ unique set of circumstances”.
Hoffman joins from Russell Investments, where he co-founded the firm’s Currency Implementation business in 2003, and most recently, as global head of currency, led the team responsible for hundreds of currency overlay accounts with assets under management in excess of $60 billion.