One of the sectoral systems that has seen plenty of return-generating activity this last year is the currency-slanted worldwide macro-fund. Forex hedge funds had an especially target-rich environment in 2010, a year that saw the Euro-sovereign debt crisis, the slow release of the Yuan, and the opening shots of the ?currency wars ?, as competitive devaluation began in earnest. The potential that was there had been realized for plenty of the more sassy fund chiefs; though many were caught out by the Dollar carry trade losing its shine.
This year guarantees similar opportunities, with the fundamental business structural imbalances only papered over. When global equity turbulence is factored in, many see currency-focused funds as offering more certainty, for those wanting low beta and maximum alpha. Even within the more balanced global macro funds, the necessity to either hedge currency hazards, or milk foreign exchange plays that develop with unfolding events, interprets to a real requirement for more currency exchange expertise in the alternative investment industry.
So , with currency hedge funds expanding in both breadth and depth, there is a great cry going up from the industry for foreign exchange trading vets to set-up operations, so as to meet this increased demand. Unlike with equity- or credit-focused funds, the pool of experienced foreign exchange money-managers is less. Equity and debt funds can draw upon a tranche of management experience at exchange traded fund (ETF) level. There's a much less deep level of talent at the mutual funds for currency trading.
This is the reason why the net is being cast widely by the currency exchange hedge funds ? and such funds are netting chiefs from two significant sources, ones outside the alternative investment club. Given that the levels of potential reward ? for handling other peoples money instead of an institution?s ? are an order of magnitude higher, many experienced foreign exchange hands are sitting up and taking notice. Hedge funds typically actualize a 2-and-20 fee structure, with managers taking a 2% piece of the funds under management, plus a 20% cut of the returns. So that the money you pull in is only limited by your performance ? and can be literally sky high.
The 1st source of new blood for a revamped currency-hedge fund sector is, of course, the investment banks. Many of the larger banks are beginning on a policy of hiving off their proprietary trading desks. With foreign exchange traders seeing the way that the wind is blowing, for their trading desks, the opportunity presented by foreign exchange hedge funds is certainly now more alluring.
Nonetheless those making the jump will need to become used to a gigantic cultural leap. There's no safety-net for the hedge fund executive, particularly in the smaller capitalized funds. And earning new customers will mean dusting off those client-facing abilities. But those successfully making the jump will be pleased they actually did so.
Another place that foreign exchange funds may tap talent from is the retail forex trading community. Currency trading, with one?s own money, has taken off in a big way this last decade ? and pulled in a vast quantity of new trading talent. For the most prosperous, and bold, of these, a step up into hedge funds is a logical next move. Here the cultural barrier is probably less ? non-public foreign exchange traders are a hardy, inventive bunch. What matters has a decisively established trading reputation with which to pull in the capital for you to control. If you have robust contacts, and a proven record, then the leap into currency exchange hedge funds might be a stratospheric one for you.
Terry Weiss thinks that the best hedge funds are the ones in the category called forex hedge funds. As usual, invest wisely and at your own risk!