The active hedging product saw AUM treble from $4 billion to $12 billion – partly because Record signed up “two large US state pension funds totalling $ 8.1 billion”. You have to wonder if either or both of them start with a ‘Cal…’ (CalPers and CalSTERs: Stripe me up!)
The AUM in the absolute return product fell from $13.4 billion to $7.7 billion.
Neil Record, the company’s chairman and CEO, details the company’s investment policy in the profit statement: “We recognise and exploit two principal currency market characteristics (I use the term in the sense of ‘opportunities’) – the forward rate bias (or ‘carry’) and trends (or ‘momentum’). We also recognise another, less pronounced inefficiency – short-term ‘mean reversion’.”
Absolute return ‘exploits’ all three ‘characteristics’ whereas active hedging just pays attention to momentum – which explains the difference in the results of the products: the active hedging product has tended to result in positive performance over client benchmarks whereas absolute return “has seen a period of negative performance from July 2007.”
The company still has faith in its absolute return programme but will follow that time-honoured solution to underperformance: re-naming the product. From now on ‘absolute return’ will be described as ‘currency for return’, which appropriately sounds less, well, absolute.
In fairness, the company is also renaming ‘active hedging’, recognising that, as a description, it “…may suggest a greater degree of risk-taking in the expectation of generating a return, and therefore that ‘dynamic hedging’ is a more appropriate description.”
I’m not sure I agree that ‘dynamic’ implies less risk-taking than ‘active’, but I expect those marketing people know what they’re up to.
In the meantime Neil provides a gem at the start of his profit statement: “Our clients’ experience in our Active Hedging products has been generally good, while our clients’ experience in our Absolute Return products has been poor.”
Remember that, you absolute return investors: you didn’t lose money, you had three years of poor experience.
