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Neil Record |
Few people know currency overlay – an industry always on the verge of maturing – better than Neil Record, chairman and CEO of Record Currency Management. According to Mercer Investment Consulting, the company he started was awarded the world’s first currency overlay mandate in 1985, when the Water Authority Superannuation Fund asked it to implement a dollar-based hedge.
Record, who has been doing his present job for 19 years, began his career at the Bank of England before moving to food manufacturer Mars, where he was a commodity price forecaster also responsible for currencies. Until that time, the company’s managing director had looked after currencies by advising the treasury on an ad hoc basis. When one day he made a £6 million loss, he felt the time had come to replace himself with a full-time expert.
Record built and implemented a model-based currency management process for Mars, saw its potential as a wider-ranging currency management technique, and at the age of 29 decided to put his skills to use as his own boss. It’s been a long, slow slog, but he has never looked back.
Record remembers with some pleasure moments in currency history that others recall with dread. He happily admits to contributing to the downfall of his former employer, the Bank of England, when sterling collapsed in 1992. While George Soros was busy making £10 billion in a matter of days, Record Currency Management quietly sold and squirrelled away profits on about £1.5 billion too. “Our dealers were exhausted after those few days. It was just deal, deal, deal,” Record reminisces happily.
Panic aversion Six years later, in October 1998, the mettle of Record’s trading models was tested again when the yen gained 8% against the dollar in a relatively short period of time. Record Currency Management uses dynamic hedging techniques, which means that it trades reactively to market moves. “For a couple of days the markets were controlled by the panic of hedge funds,” muses Record. “We just had to try to prevent the panic disrupting the dealing we had to do. Record didn’t have a very short yen position and we did just fine.”
For its first 10 years, Record Currency Management worked only with corporates. Free-floating currency regimes had only been in play for a few years and corporate treasuries, lacking forex expertise, needed a helping hand. By 1990, the company had 25 staff, the same number it has today.
Winning business from corporates that needed currency expertise was comparatively easy at first, says Record. But by the mid-1990s corporate treasurers had become more expert at managing foreign exchange and Record decided it was time to market himself to institutional investors instead. Competition in the industry began to grow in earnest, which has made the institutional market the mainstay of business for all overlay firms today. Record Currency Management now manages more than $8 billion in assets. “Currency management is not intuitively easy and we can’t educate the world alone,” says Record. “Now there are a number of well established overlay managers, and when I approach institutional investors, a lot more know what I’m talking about. Before they would look at me as if I were from Mars or something.” Well, of course, he was.
