TOKYO (HedgeWorld.com)–FX Concepts has forged a strategic alliance with the equity-focused boutique RS Asset Management, which will serve as the exclusive distribution agent for the New York-based firm’s currency overlay programs in Japan.
“I think the deal is important because it comes at a time when more Japanese institutional investors like pension funds, insurance companies and banks are putting more money overseas, and these investments are typically not denominated in yen. That means currency exposure is a big issue,” said FX Concepts principal John Taylor.
And currency overlays on investments, especially ones that are flat or down, helps keep investors’ portfolios in the black, according to Mr. Taylor. The typical FX Concepts currency overlay seeks to add 300 basis points a year to a portfolio a year, he said.
What’s more, the recent weakening of the U.S. dollar and the strengthening of the euro has caught the attention of investors in Japan, a country whose economy has been stuck in a six-year recession that has displaced a sizable amount of investor capital to offshore equity markets.
Big shifts in currencies can provide upside potential for managers of FX funds and overlays but can fray the nerves of investors who aren’t adequately hedged, Mr. Taylor said. “Look in 1975 the yen was trading at 300 (against the U.S. dollar). In 1995, it was at 80 and now it’s at about 121.”
“But even over a short time period, the moves could be enough to have a significant impact on performance. This is very important–not only for a hedge fund–but for a large pension system in a country with an aging population like Japan,” he said.
FX Concepts provides an overlay for some US$700 million under management. About 90% of that sum is in overlays against equity investments. The firm manages its client portfolios in both managed and pooled accounts.
Tokyo-based RS Asset Management has specialized in creating U.S. and Japan-focused equity strategies since 1997. The group has ties to a number of Japanese institutional investors. “We’ve had a relationship with RSAM for sometime but what this deal does is cement that with a mutually exclusively arrangement,” Mr. Taylor said. “We see this as a win-win, for both parties and investors looking to hedge (currency) risk.”