State Street Global Advisors (SSgA), the investment management arm of State Street Corporation, announced today that it has reached $100 billion in assets under management (AUM) for its currency strategies. SSgA’s currency assets have more than doubled over the last three years, reflecting the increasing importance of currency strategies in the management of pension fund assets.
“The substantial increase in international investments by pension schemes, coupled with the alpha generating opportunities in active currency management, have resulted in a significant increase in the importance of currency management strategies for pension schemes worldwide. Demand for currency management has come from our clients across the globe, reflecting the increased global importance of both passive and active currency capabilities.” says, Collin Crownover, head of currency management at SSgA.
At the heart of SSgA’s active currency management strategies lies the tenet that currencies as an asset class behave very differently compared to bonds and equities. SSgA believes that the composition of foreign-exchange market participants is strikingly different to those of bonds and equities, however many currency market participants are not seeking profit from currency but are rather consummating some other underlying transaction or attempting to eliminate risk by hedging.
Collin Crownover explains: “The limited participation by true profit maximizers in these markets leads to many market inefficiencies. An active manager can capitalize on the inefficiencies inherent in these markets and add value. Indeed, we believe that an active approach to managing currency risk is more efficient than a dynamic hedging or option-based approach.”
In analyzing the forces driving currency markets, SSgA research has identified two broad trends. The first is that a thorough analysis of the characteristics of currency price movements reveals distinct repetitive and predictable price patterns in foreign exchange. The second is a fundamental, macroeconomic analysis which examines the historic relationship between economic data and currency prices to forecast future price movements.
“Our experience and research has led us to believe that both of these approaches are valuable in evaluating currency markets. Therefore we have designed our processes to incorporate both technical and fundamental components,” said Crownover.