Currency managers measure their assets under management differently, making comparisons among them difficult at best.
You cannot just count the assets, said Yariv Itah, partner at Casey Quirk & Associates, Darien, Conn. Theres the actual assets being invested and theres the notional value. Some report notional assets, some report real assets and others report the value as if the product is geared up to provide a volatility of, say, 3(%) or 4%. Its very hard to compare numbers in terms of apples to apples.
Certain managers combine the assets under management for passive and active strategies, while others separate them. Some calculate assets using real assets that have been invested, but others report the notional assets the value of exposure that determines the level of trading in a portfolio.
Mellon Capital Management Corp., San Francisco, scales its notional assets to a volatility of 1%. Positions are scaled so active currency exposures are recorded with the same level of targeted tracking error, because different clients will have opted for different levels of risk.
In comparison Goldman Sachs Asset Management, also based in New York, scales its notional assets to a volatility of 4%. Thus, a $20 million exposure to active currency at Mellon is roughly equivalent to a $5 million exposure at Goldman Sachs.
Others, such as New York-based FX Concepts Inc., might choose to disregard the differing levels of volatility when calculating notional assets. Therefore, $5 million at a volatility level of 2% is recorded in the same way as $5 million at a volatility level of 4%.
But differences in the way that assets are calculated do not mask the expanding pools of active currency assets under management, as reported by managers.
Mellon Capital has experienced triple-digit growth in the past two years, lifting the notional value of active currency assets to about $9 billion at year-end 2006 , said Bruno Gerard, director and senior currency strategist. At year-end 2004, it had $2.5 billion.
FX Concepts recorded $12.3 billion in notional assets under management in active currency strategies as of Dec. 31, 2006, or a 61% increase from three years ago. At year-end 2003, notional assets were valued at $7.65 billion.
State Street Global Advisors, Boston, managed $96 billion in notional currency assets as of Dec. 31, a 31% increase from year-end 2005 and more than double the amount three years ago. Growth in the number of new clients has been about 20% annually for the past three years, with about half of the new mandates in absolute-return strategies, according to Collin Crownover, SSgAs head of currency management based in London.
Pareto Investment Management Ltd., a London-based specialist currency manager owned by Mellon, thrives on an active hedging strategy that has been growing about 15% annually for the past five years, according to Vice President Arnaud Gerard. As of Dec. 31, Pareto had about $61 billion in notional assets under management, which also includes a currency absolute-return strategy and a passive hedging service. (As of year-end 2003, the firm had $34 billion.) The firm launched a pooled currency vehicle on Jan. 10, which has about $50 million in real assets.
Record Currency Management Ltd., Windsor, England, manages $42.8 billion in nominal assets scaled to a volatility target of 4% as of Dec. 31. That amount is a 76% jump compared to year-end 2005 and more than tripling its nominal assets under management at Dec. 31, 2003. Its institutional client base grew to 68 at the year-end 2006 compared with about 10 three years ago, said Peter Wakefield, managing director.
Putnam Investments, Boston, manages $31.5 billion notionally in active strategies, including $6.9 billion in absolute-return strategies, said Parker King, managing director and currency team leader. The notional value of its active currency portfolios has increased 58% in the past five years, from $19.9 billion at the year-end 2000.
In 2006, the firm participated in about 10 finals, all but one of which was for active currency management, he said.
First Quadrant LP, Pasadena, Calif., ran $11.9 billion notionally in long/short currency-only strategies as of Dec. 31, doubling the asset value from the previous year. The notional assets under management in active currency-only strategies totaled $5.9 billion at the year-end 2005 and $2.2 billion as of Dec. 31, 2003.
A.G. Bisset & Co., Rowayton, Conn., was a finalist in about 20 searches in the U.K. over the past six to eight months, said Cristoforo Rocco, managing director who joined the specialist currency manager in 2006 when it opened an office in London. The move followed a surge of business from U.K. pension funds.
As of Dec. 31, A.G. Bisset managed $2.8 billion in real assets, a 55% increase from $1.8 billion at the year-end 2002. U.S. clients comprise only about 13% of its currency business compared to 52% from Europe.