FX Concepts has fallen from being the largest currency hedge fund in the world with $14 billion in assets under management before the financial crisis to a bankrupt company with less than $2 million AUM and nearly $80 million in liabilities, Gertrude Chavez-Dreyfuss reports for Reuters.
FX Concepts’ loan note
Of its $1.62 million in assets, $1.61 million is a loan note from FX Concepts founder and chief investment officer John Taylor, so the fund is basically operating on the founder and largest shareholder’s dime while it works its way through bankruptcy proceedings. Its largest debt is $34 million to Asset Management Finance, which is owned by Credit Suisse Group AG (ADR) (NYSE:CS).
FX Concepts relies on automated, intra-day trading strategies in the forex market to give returns, but when volatility is low, as it has been in recent years, these strategies don’t have a lot of room to work. Last year Taylor said, “[Low volatility] absolutely does make it harder to make money… We are trying to say gee whiz, how can you make any money with such a low leverage? We can say, oh, we’re having a decent year compared to our peers, up 2, up 3. What good is that? You will not sell anyone anything if you are saying you are going to make 2 or 3%. It’s not enough.”
Investors pulling money out of FX Concepts
And clearly Taylor was right, because his investors have been pulling their money out of the fund for the last few years. When the San Francisco Employees’ Retirement System withdrew $450 million in September, about 66% of the entire fund at that time, the writing was on the wall. The company filed for bankruptcy about a month later.
The strategy that initially made FX Concepts so popular isn’t necessarily flawed so much as out of sync with current market conditions, so the underlying models still have real value. Taylor is seeking permission to sell the company’s remaining assets, including the computer models, hardware, and trademark, to Ruby Commodities Inc. for $7.48 million, reports Tiffany Kary for Bloomberg. Even if Ruby Commodities can’t put those models to good use right now, forex volatility can’t stay low forever.