October 7, 2013 / 10:23 PM / 4 years ago

FX Concepts considers closing flagship fund to stay afloat

NEW YORK (Reuters) - FX Concepts, once the world's largest currency hedge fund, is examining several options to stay afloat, including closing its main fund after a flood of withdrawals left overall assets at a fraction of the $14 billion peak, the firm's chief strategist said on Monday.

Bob Savage, formerly with Goldman Sachs (GS.N), said FX Concepts' Global Currency Program flagship fund was down 10 percent so far this year and "we're thinking of shutting it down." He said FX Concepts wants to reallocate resources to other strategies that are profitable. It has four other funds.

FX Concepts, founded by chairman and chief executive officer John Taylor in 1981, has been besieged this year with the withdrawal of important investors, including the Pennsylvania Public School Employees' Retirement System and the Bayerische Versorgungskammer pension fund earlier this year. Taylor declined to comment.

According to Savage, FX Concepts had $1 billion at the beginning of the year and "John tried his best to ride it for six months." He said that has since dwindled to $621 million as of October 7 because of poor performance and client withdrawals.

The last straw was the withdrawal of the San Francisco Employees' Retirement System, which voted to redeem its money from FX Concepts on September 11, CNBC reported. Savage said reports by CNBC of clients leaving the fund "are on track."

The firm is trying to focus on its more viable businesses, such as its volatility fund and its "currency overlay" strategy, which refers to separately managing the forex risk of an equity or bond fund, Savage said.

Savage blamed the company's woes to the underperformance of its systematic trading business. About 90 percent of the fund's trading is done through the systematic approach, which involves the use of computer models in trading. This approach has not worked in 2013 because of central bank intervention making trading patterns less predictable.

"Systematic trading has lost its luster," said Savage. "The human intervention from central banks and from politicians whether it's about regulations or extraordinary policy, makes systematic trading less profitable."

With the decline in assets under management, the company had to lay off some of its employees. At its peak, the company had about 55 to 60 employees globally and assets under management hit $14 billion in 2007. As of Monday, the number of employees had fallen to 20 from 38 at the beginning of 2013, Savage said.

The FX Concepts official, who joined the company a year ago, said that in addition to "currency overlay" he also would like to focus more on the volatility fund, which was up 13 percent this year and has about $70 million.

Its Global Financial Markets fund, which is focused on specific trade ideas, is up 48 percent this year, Savage said. He said it has only $20 million allocated to it and the firm is considering allocating more resources to that fund.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Grant McCool

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