Deutsche Bank puts the case for currency management

Deutsche Bank is working to convince fund managers who invest offshore that they need to have their currency exposure managed separately.

London-based currency manager Michael Collins was in New Zealand last week to promote the skills the bank can offer.

"People who have managed currency in the past have done it in a balanced context or as part of a global equities mandate. Often those people aren’t currency experts," Collins says.

And often the returns from currency exposure have been hidden except when they have been used as an excuse for poor performance.

"Most people see currency as a risk and often it’s an unwanted risk," he says. Fund managers are often charged with avoiding making currency losses rather than using currency exposure to add value.

"Equity managers don’t get paid for currency management, they get paid for picking stocks and countries. I would argue that anybody who spends 100% of their time (managing currency) will be better at it," Collins says.

Critics might argue that given the high volatility of currency markets and the often apparent lack of logic in value changes, that it’s next to impossible to make money from currency management.

In the past, this has been compounded by a lack of agreement on how currency performance should be measured but now there’s increasing agreement.

"Currency specialists who only manage currency and nothing else have actually done very well," Collins says.

Until offshore share markets started to nosedive and the New Zealand dollar started to appreciate, New Zealand managers have made "wonderful profits" from being completely unhedged. But now many unhedged portfolios are showing rivers of red ink. "That’s why I’m here," Collins says.

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