UK equities boutique opens currency fund; Mercury Forex to manage

By:
Russell J. Dinnage
Published on:

The current trend of low returns in the global equities markets is increasingly driving investors to seek out alternative asset classes for generating alpha.

Symptomatic of that, London-based investment bank Daniel Stewart & Co – which has a strong base of equities market clients in the UK, the Middle East and in Asia – and Swiss FX trading house and asset manager Mercury Forex are launching a new currency fund called the Daniel Stewart Mercury Forex Fund.

The joint venture is set to begin trading on January 1 2013.

The tie-up between the companies will give Daniel Stewart’s equities client base exposure to the FX market within a fund that will be managed by Mercury Forex’s founder and CEO, John Birkins.

Daniel Stewart CEO Peter Shea says work on setting up the Daniel Stewart Mercury Forex Fund began a year ago when he was first introduced to Birkins.

At the time, Shea says his firm was actively seeking out alternative investments for its equities clients, who were requesting that Daniel Stewart get them more involved in the highly liquid FX market.

"We wanted somebody to run an FX fund for us who was long in the tooth in terms of experience and who had a good track record. We thought John was pretty outstanding in that respect," says Shea.

Birkins has 30 years of experience in the FX market after five-year stints at both UBS and Credit Suisse from 1983 to 1993 where he worked as a trader and chief dealer, respectively.

He founded Mercury Forex in January 1993 using his own money. The company is regulated by Swiss regulator Finma and has posted an average of 18.7% returns since its inception.

Year-to-date, Mercury Forex is up by 1.8% in 2012, says Birkins.

The Gibraltar-based Daniel Stewart Mercury Forex Fund will initially be capitalized to at least $20 million, and both Shea and Birkins say they expect to grow the pot to $2 billion within the space of one year to 18 months.

Birkins says he was interested in engaging with Daniel Stewart’s retail client base in an effort to strengthen links with investors in the UK and in the Middle East, where he says Mercury Forex has not built a base, having focused on institutional investors in Switzerland and elsewhere in western Europe.

Birkins says he now wants to bring his strengths in algorithmic, contrarian FX trading to bear for a new investor audience.

He says the trading strategies he will use for the Daniel Stewart Mercury Forex Fund will be the same strategies he has developed over 19 years for Mercury Forex.

"Mercury Forex does not follow trends; we like to pre-empt a trend when a trading opportunity presents itself. We never buy strength and we never sell weakness, it is a purely contrarian strategy that has proven to be very successful over the years," he says.

For example, Birkins says he is looking for medium-term to long-term strength in the USD, that he expects GBPUSD to weaken despite its recent strength and that he thinks Australia is "a disaster waiting to happen" because of the strength in the AUD, which he says will have a negative effect on the Australian economy .

Shea says he expects Birkins to bring 14% to 18% returns on investments in the Daniel Stewart Mercury Forex Fund.

"Historically, John has returned those levels over time and so there is no reason to believe he won’t be able to do that in the future," says Shea.