Russell, Hathersage Vets Seek to ID Role of FX
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Alternative Investment News
Vol VIII, No. 21
May 28, 2007
Portable Alpha Study
Sorina Givelichian, National Director Institutional Solutions at Russell Investment Group and Lynnelle Jones, Director of Client Services at Hathersage Capital Management, have written a report that seeks to specify the role of FX in portable alpha.
The paper argues that FX absolute return, traditionally overlooked as an asset class, is one of the purest forms of scaleable diversified alpha. Institutional investors are just beginning to see this, according to Givelichian. "More and more institutional investors are reassessing how they view FX risk and FX return," she said.
Unlike many alpha sources—private equity, venture capital or infrastructure, for example—FX mandates require little funding. Givelichian and Jones argue that because currency trading does not require cash, "it does not make sense to fully fund absolute return currency alpha." An actively-managed currency account—not to be confused with "currency management," which is the broader concept of hedging risk and reducing volatility—can be funded with as little as 10%. Leverage can juice returns, while risk is easily hedged due to the unique quality of the asset class. Specifically, FX assets are "not valued in currency, but by another currency, meaning the asset is not one currency but a pair."
The writers have over 40 years of combined experience in currency trading. Givelichian's expertise is financial engineering. She was previously a managing director at private bank Cidel Financial Group. Jones began her career at Salomon Brothers before moving to Goldman Sachs in the early 1980's. The paper will be submitted to trade journals. Eventually, Givelichian and Jones—whose husband is legendary FX trader and Hathersage Founder Bill Lipschutz—plan to publish other studies relating to FX investing.
