Foundation & Endowment Money Management - Nonprofits Eye Currency Market

Nonprofits Eye Currency Market

Endowments and foundations are increasingly turning to currency trading for liquidity and attractive risk opportunities. Recently, the CAD1 billion Nunavut Trust was considering a currency hedging play for its portfolio (FEMM, 1/5). FEMM Contributing Reporter Joseph D'Allegro recently spoke with Mike Shilling, ceo of Pareto Investment Management; Virginia Reynolds Parker, managing member and cio of Parker Global Strategies; and Dori Levanoni, partner and co-head of global macro research at First Quadrant, about investing in currency.

FEMM: Why should endowments and foundations invest in currencies?

Virginia Reynolds Parker Parker: Currency investing provides an interesting alternative for endowments and foundations. There are essentially three approaches for exposure: participation that accompanies international investments, a managed account investing via "lines" set up with a counterparty bank, or a comingled fund. Over time, currency fluctuations may be significant. During 2008, the U.S. dollar's performance ranged from down nearly 19% against the Japanese yen to up 36% against the British pound. Such a range is not unusual and creates investment opportunity. The benefits of adding a currency strategy to an investment portfolio include excellent transparency, significant liquidity, and low correlation to other asset classes. Over the years, currency trading has become less risky as managers tend to have smaller positions and better volatility controls, and there is an expanding universe of currencies which may be trading.

Dori LevanoniLevanoni: We believe that endowments and foundations should invest in currency as an active strategy. It is one of the best places to look for alpha, as it has the largest opportunities with the lowest costs to capture them. To that end, currency programs are, in some ways, easier to manage than traditional asset programs. They tend to consume less cash--often running as "unfunded" or "margin funded" mandates--and the timing of cash flows are chosen in advance. Being a very deep and liquid, as well as transparent, market also means that currency programs can be changed "on the fly" far easier than other assets, particularly other alternative assets where illiquid and "mark-to-model" assets can't offer that same level of flexibility. ...

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Nonprofits Eye Currency Market

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