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The lone wolf of currency overlay

André Perold

When André Perold, professor of financial management at Harvard Business School visited JP Morgan Investment Management in 1987, it was a momentous occasion for Adrian Lee, president and CIO at Lee Overlay Partners, who was then working at JPMIM.

Perold is well known for his work on currency risk management. A year after visiting JPMIM, he co-authored a paper, The free lunch in currency hedging: implications for investment policy and performance standards, which, in the past decade has been included on almost all reference lists about currency overlay.

Lee, who had also been a lecturer in statistics at the University of Pennsylvania before JPMIM, quickly realized that this fellow academic was a man worth listening to.

The case study that Perold did on JPMIM's fixed-income business made Lee realize that managing fixed-income assets was like having two portfolios - one in bonds and another in currencies. "I suddenly figured there was no return for lots of risk," says Lee, as if it had been the most obvious thing all along. "That's when I realized that currencies were a separate animal to stocks and bonds."

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