Of the $32.5 billion in total asset exposure, $21 billion was wrapped up in passive hedges, which were part of the firm’s market exposure as at the end of September, says Record. Passive hedging activities are typically currency forward contracts designed to eliminate volatility in the currency portfolios of clients from developed world markets.
Record CEO James Wood-Collins says the increase in the size of the firm’s passive hedge position in the market at the end of Q2 versus the end of Q1 – when the position was $19.1 billion – is the result of an increase in clients from Switzerland moving their currency management activities away from custodian banks.
He added that $1.1 billion of the $1.2 billion in inflows of new client money in the quarter was allocated to the passive hedging strategy as Record added three new clients to its existing list of 40 as the quarter closed.
“What we’ve seen emerge over the last six to 12 months is more enquiries for new business from Swiss clients, and that’s really from clients who are, in many cases, looking for the first time to appoint a new manager to run their passive hedge,” says Wood-Collins.
“Historically, they might have had their custodian bank run a passive hedge, or they might have allowed another banking relationship to do it.”
Swiss demand for passive hedging is magnified by long-standing regulatory requirements that pension funds in the country hedge away currency exposures beyond a certain limit, says Wood-Collins.
Record is set to announce its half-year results on November 16 and its Q3 results on January 18.
In June, Record reported that its management feesfell by £20.4 million, a decline of 27% on the previous year, and its executives took a pay cut as a result as investment mandates declined.
Record will update the market in November on the current state of affairs related to its management fees, says Wood-Collins.