Passive Hedging Case Study
By offering a tailored approach to Passive Hedging, we helped a client get the dedicated and bespoke service which they sought.
The client hedged some of their international currency exposures with a provider who delivered a commoditised passive hedging service. Here at Record we do not view passive hedging as a commoditised service, we tailor each program to the specific requirements of each client; be that through flexible data collection, the timing and advanced notification of cash flows, custom bank panels and trading arrangements, or otherwise. We also explained to the client how we had developed our passive hedging offering through our research into the FX basis phenomenon and the development of our tenor management offering to provide significant cost-saving opportunities within hedging programs.
Since our appointment, we have continued working with the client to improve and enhance their passive hedging service. Their program has been highly tailored to include our duration and gate tenor management services, providing additional cost saving opportunities. The Client has a dedicated team at Record who are contactable at any time.
Additionally the client expressed an interest in learning more about currency risk management, so Record arranged for the client to spend time in our offices. Our philosophy is that our clients not only gain a currency hedging manager in Record, but a partner in all areas of the currency market.
Currency for Return Case Study
A longstanding client had been investing in currency risk premia strategies (carry, momentum, value) with a number of different managers, of which Record was one. In doing so, the client believed that their exposure was well diversified and that return opportunities would be covered in a variety of different market environments. However, during the risk-off environment of the global financial crisis, the individual managers did not each use their full risk budget, reducing the diversification benefits and negatively impacting on the client’s returns.
When the client explained the situation, we realised that a number of clients could benefit from a strategy which combined multiple currency risk premia into one diversified product. The research department at Record partnered fundamental economic thinking to understand the market inefficiencies underpinning the risk premia and a quantitative analysis of the potential returns over a long simulated history. This was then analysed by the Investment Strategy team to produce a robust investable portfolio – what emerged was a compelling idea for a multi strategy currency product.
In addition to the historic low inter-strand correlations, our client liked the way that Record has discretionary risk management oversight and determines the allocation between risk premia and the overall portfolio scaling, allowing them to gain optimal exposure to each component strategy while maintaining diversification across the portfolio in line with a risk budget. The product launched in July 2012 and has produced a positive return for the client on annualised basis. We continue to develop the strategy and to research new opportunities and inefficiencies within currency markets.