Currency manager Record eyes US investors as key to future growth
It has been a tough few years for currency managers, no less so for Record Currency Management, one of the pioneers of this sector.
Earlier this month, it announced that management fees fell £20.4 million, a decline of 27% on the previous year, and its executives took a pay cut, as investment mandates declined. Since 2010, its client numbers have more than halved, but there are signs of the green shoots of growth, argues the company’s chief executive James Wood-Collins.
He says Record’s strategy mix provides some pleasing prospects for growth. A blending of passive and active currency management strategies, or, if preferred, taken separately, are finding new markets in Europe and the US.
On the passive hedging side, he says the number of mandates with Swiss clients was up 50% in the 12 months ended March. This has largely been driven by concerns from Swiss asset managers about the concentration of counterparty risk, and a move away from their use of custodians, he adds.
At the same time, its active hedging strategies are gaining interest among US investors.
“The US is a potentially transformational market, and we’re looking for tangible signs of progress this year,” says Wood-Collins.
US investors have in recent years run unhedged currency exposures on the offshore portfolios in the belief the US dollar was in a cyclical decline. That consensus view is now changing, adds Wood-Collins.
Furthermore, the US market is the elephant in the room for Record, as more US asset managers look to diversify beyond the US, in what he calls a “secular shift in global asset allocation”.
Potential mandates are likely to consist of a combination of hedging opportunities and return-seeking strategies.
“It’s about understanding the client’s tolerance for tracking error against their benchmark and for taking risk in expectation of returns and then constructing a package of strategies that has both active and passive elements,” says Wood-Collins.
Record is hoping to also benefit this year from reaching a three-year threshold for some of its newer return-seeking strategies, in particular in emerging markets (EM), which is likely to spur more interest from clients and asset consultants.
A three-year track record is often seen as a requirement for an investment proposition to be tried and tested.
“Whilst initial allocations will likely be modest, we are hopeful of these growing more strongly over time,” says Wood-Collins.