Record plc, a London-listed specialist currency manager, announced last week that its emerging market currency business had raised £1.1 billion (€1.2 billion) of assets by 30 September.
The firm launched its Emerging Market Currency Fund, which is Record’s only fund investing in the currencies of emerging markets, in December 2010, with share classes denominated in sterling, the US dollar, the Swiss franc and various other currencies.
The fund currently has only seed capital and a small amount of money invested by Record plc Directors. This totals just under £2 million. Record’s other emerging market assets are segregated mandates.
The fund sprang from Record’s emerging currency strategy, which was launched in November 2009. However, its involvement in active emerging market currency investment dates back to 1995 with the win of its first bespoke emerging markets mandate.
Record, which had £18.8 billion in total assets under management (at 30 September), made the announcement in its second quarter trading update.
The launch of Record’s emerging currency fund came at a time when some fund managers were expressing optimism for direct investment in emerging market currencies to tap growth in those markets, as well as through the more conventional routes such as local currency debt.
Investec, for example, launched the Investec GSF Emerging Markets Currency Alpha Fund in 2009, converting it to a Ucits III structure in 2010. The firm launched another fund, the Investec Emerging Markets Currency Fund, in January this year.
Record’s current universe of emerging market currencies comprises 13 currencies from South America, Asia, and Emerging Europe, Middle East and Africa. The list is kept under review and can be expanded as new entrants meet its fundamental and market criteria.
Asked about performance, James Wood-Collins tells Funds Europe: “Investment performance was strong until the September 2011 sell-off in risk assets, and has been roughly flat in total over the live track record since November 2009.”
In September, emerging currencies reversed their gains against certain major currencies as investors retreated from taking risk in assets like emerging market equities.
“Pro-cyclical emerging and commodity-linked currencies fell sharply in September against the US dollar and the yen, as risk reduction spread. European currencies were also weak, but not to the same extent,” a recent Investec report says.
But Investec says the structural arguments for medium-term emerging currency outperformance are “compelling”.
“Emerging currencies look increasingly cheap and are attractive over the medium-term. Most currencies are oversold against the dollar and some recovery seems likely, but it is hard to conclude that this will prove durable while market fears remain unresolved. We view more expensive commodity currencies as a good hedge against renewed weakness and will look to sell them into significant further near-term strength.”
The firm says that over the medium-term, various drivers should be enough to see developing market exchange rates appreciate by perhaps 2-3% per annum in real terms, continuing the persistent trend of outperformance against developed currencies of the past ten to 15 years.
©2011 funds europe