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Foreign Exchange

Volatility sparks wave of demand for currency hedge funds

Currency hedge funds have recently seen increased demand from investors across the globe, and a couple of fund providers are responding by making their offering more accessible to investors, according to Global Money Management, a sister publication to EuromoneyFXNews.

Most recently, State Street Global Advisors (SSgA) has announced the addition of two of its currency strategies to Deutsche Bank’s dbSelect platform. The move will “offer investors an efficient way to access [its] currency alpha strategies” and “help extend the reach of these strategies to a new investor base”, says Collin Crownover, SSgA’s senior managing director and head of currency management. Last week, UK-based currency trading hedge fund manager C-View signed a contract with MCAM Group, an alternative assets marketing firm based in Geneva, in an effort to tap into the interest it has seen from pension funds in Switzerland and Scandinavia.

Inflows have also been coming from Asia, especially Japan, noted Peter Knowles, chief operating officer at C-View, and Hans Jacob Feder, head of dbSelect.

“Hedge funds are spending more time on currency and there is good demand for currency solutions,” Feder says. He believes there are several things driving this demand: “Firstly, normal diversification, but also the fact that policymakers have been much more active in the currency space recently.”

This year, the performance of currency hedge funds has not been encouraging—the Barclay Currency Traders Index is reporting an estimated performance of 0.39% year to date, while the Parker Global Strategies Currency Managers Index has seen currency-driven strategies lose 2.23% in March from the previous month, partly due to aggressive betting on emerging market currencies.

However, Knowles believes the incidences of volatility in the FX market can produce “good opportunities” for investors in the asset class.

Investors that do invest in currency do so for diversification purposes and keep it in the portfolio as an addition to other hedge fund strategies. As such, most would rather invest through a managed account platform, Feder says.

He says investing through a platform is “much easier, and often much more cost effective” than directly and also removes some of the risk exposure to a single fund. “It can be counter-productive to set up a single managed account for every one relationship, so what we see is that many institutions first try to invest themselves, but then choose a multi-manager solution through a platform,” he tells iiSearches.

The dbSelect platform has around 60 to 65 pure currency solutions, with more than $5 billion in the managed account platform. The addition of SSgA was completely client-driven. “If an investor wants a manager on the platform, we add them,” Feder says.

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