Big Picture Roadmap
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Founder of The ECU Group plc in 1988 was CEO & Chief Investment Officer for 19 years. 25 years of experience in managing FX mandates and presided over the successful management of all ECU's core currency products until Nov '07. He returned to ECU in 2011 and was appointed interim CEO in Feb 2012. Currently ECU's Chief Investment Officer and Chairman of its Global Macro Investment Committee.
- Description: Registered Investment Advisor (RIA).
- Interests: Commodities, ETFs, Forex, Gold
The ECU Group plc Founded in 1988, The ECU Group plc (“ECU”) is the UK’s longest established foreign currency debt manager. Backed by solid investment performance, ECU became established as the UK’s leading currency debt management firm and one of the fastest growing and most profitable private businesses in the country. For ...More
25 years, our commitment and passion to deliver solid long term performance has enabled the company to navigate clients through many differing economic cycles, both positive and negative, providing them with continuity and reassurance in an ever changing investment world. In today’s economic environment the need for a professional, all encompassing investment strategy is more prevalent than ever. We believe that our global macro “big picture” investment philosophy, methodology and process are central to us providing all our clients with a structurally sound and well balanced global investment roadmap in order to optimise investment returns on a fully risk and currency adjusted basis. Our entire investment approach is based upon an ever adjusting balance of key considerations, in line with a changing financial and economic landscape. Whilst we draw on a full range of investment principles and methodologies, we maintain, as distinct from many, an overriding discretionary control over our management programmes. We believe that the progressive, hands on engagement of our investment process by high calibre and fully accountable investment professionals, subject to appropriate risk management protocols, is preferable to a number of rigid or systematic processes which have become increasingly susceptible to swift over-replication and market exploitation. On balance, the increasing potential for major unforeseen events in the world today points us to a preference for experience, underpinned by a deep understanding of markets, over automation. At heart, we are very much a “people business” driven by a collective will to perform, something which is reflected in whom we deal with and the systems we deploy. With today’s significant global economic, political and social challenges, the importance of credible knowledge and experience should not be underestimated. After all, the financial landscape has changed markedly over recent years. Central banks are engaging in ever more unconventional and untested policy tools. Policy short-termism seems to have become a global disease. Bold and dramatic policy measures (be they excessive quantitative easing or currency intervention) are creating an increasingly false, fractious and unbalanced marketplace. The benefits of many of these measures are front-loaded, whilst the costs are back-loaded. The central banker’s role seems to have changed, radically. Traditionally tasked with setting the rules, they now seem to be playing the game at the same time. In steering through this new financial and economic world order, one requires not just an understanding of the world macro-economic backdrop, but a recognition and capturing of the key driving forces (be they financial, economic, political or social) and turning points. At ECU, we have a befitting depth and breadth of expertise across these critical areas and stand ready to assist our clients in their long term investment goals. At ECU, in determining our global macro strategy, we draw upon the breadth and experience of our Global Macro Investment Committee, members of which contribute their considerable experience, expertise and independent views from each of their own specialist focal points (be they economics, technical analysis, monetary policy, international politics, market intelligence or trading and execution) to assist us in developing a balanced and informed high level investment roadmap. Individual members of the committee are highly regarded in the investment industry and are advisers to a number of the world’s largest fund managers, sovereign wealth funds, central banks and governments. The Global Macro Investment Committee’s high level process helps ECU to formulate its “big picture” global investment roadmap from which all the company’s products and services derive their individual bearings. For discerning institutional clients and family offices who wish to access this known resource for their own individual investment needs, we believe our global macro advisory services will provide them with the core foundations of a valuable and coherent market overview, upon which successful trading strategies can be built and executed. At ECU, we work closely with our clients, with an attitude towards building a joint intellectual partnership. Along the process, we seek to provide our clients with a comprehensive and bespoke analysis on a variety of macroeconomic, political, central bank policy, global asset allocation and currency related issues, including, if required, FX risk exposure analysis, global currency benchmarking, and optimal hedging. We believe our holistic and independent approach to developing a comprehensive global macro roadmap is central to any contemporary investment strategy. At ECU, we have drawn together both the people and the products to work with our clients, in partnership, to help steer them through a very different economic and political world order. To preserve one’s wealth over time, consideration needs to be given to the best long-term currency strategy. The global economy and financial markets have undergone dramatic changes in the last decade. Actions and reactions have culminated in the single largest financial and economic crisis since the Great Depression. At the same time, longer term structural changes (e.g. demographics and the geopolitical balance of power) are taking place which will exert persistent pressures on financial prices, and especially currencies. The resultant opportunity for profit and loss over coming years is likely to be considerable. Having already derived a comprehensive and coherent “big picture” global macro roadmap through the Investment Committee process, that considers all the core elements and drivers of foreign exchange forecasting, major trading currencies are then distilled for their relative currency strengths or weaknesses over a medium-term time horizon. Our resultant FX rankings are then adjusted for the prevailing interest rate differentials and strategically re-examined with trusted and reliable long, medium and short term technical analysis doctrines and other important considerations (eg. market positioning, sentiment, volatility, risk/reward analysis), to produce a tactical “FX Roadmap”. This FX Roadmap is fine-tuned by the investment managers, on an on-going basis and in the light of market developments, and forms the central basis around which our discretionary currency asset and liability management programmes operate. We believe that this thorough and disciplined “top down, bottom up”, ever evolving investment methodology and process is the mainstay of any successful long term currency strategy performance. After a quarter of a century of refinement and the evolution of technological systems, we have been able to develop some of the most versatile multi-currency products and services ever witnessed in the international banking arena, giving investors and borrowers alike the opportunity of using the world’s largest financial market to their advantage. The result is an important development in the range of international wealth management tools available. Modern Western democracies are being challenged both by the global financial crisis and hostile demographic trends, together with powerful issues surrounding the welfare state and globalisation. With little effective global co-ordination or leadership, and global policy makers very much pursuing an each-for-their-own policy mix, the growing and hazardous economic disequilibrium continues unabated. It is our profound belief that global investors now face growing investment challenges brought on by a marked increase in currency volatility going forward, and thus a comprehensive currency management strategy is more important now than ever before. Currency Liability Management To concentrate solely on managing assets, while ignoring debt, is somewhat illogical: akin to locking the front door and leaving the back door open. In today’s world, the eventual rise in real interest rates from the current abnormally low threshold, however small, incrementally increases debt servicing requirements significantly. Cyclical in nature, currencies afford borrowers a unique opportunity to seek, through careful management, to exploit core interest rates differentials and currency trends as a means to improve cash flows and dissolve debt. As managing currency risk - in terms of the time, effort and data required - extends beyond the scope of most individuals’ resources, ECU’s currency debt management services seek to bridge the gap between borrowers’ needs and their capabilities. While managing debt in foreign currencies is not an unknown activity, it is certainly a specialist one – and one in which ECU is uniquely qualified. The company’s flagship multi-currency debt management programme has been in operation for a quarter of a century, propelling ECU as the global leader in this specialist field. Since 1988, ECU has striven to ally the potential of the dynamics of the FX market with a means of managing client debt. Throughout history all major currencies have endured significant cycles - both up and down - generating opportunities for the capital reduction of debt. The aim of our multi-currency debt management programme is to borrow currencies that are expected to weaken against our clients’ home base currencies over time, thereby offering the potential for debt reduction and, where possible, lower servicing costs through beneficial interest rate differentials. Neither the notion nor the reality of turning a liability into an asset over time escaped the attention of a number of major private banking groups who have introduced systems and procedures so that their more financially sophisticated clients can utilise this innovative debt management product - not just in respect of their property financing requirements but also as a means of bespoke leverage within their diversified investment strategies. These innovative multi-currency lending products offer clients the ability to gain additional exposure to undervalued assets within a downturn, or alternatively, entirely new investment strategies, without disturbing existing investments. The result is an important development in the range of international wealth management tools now available. Currency Asset Management The global trend of increasing asset allocations to overseas investing is firmly entrenched. This requires careful management to ensure that returns on overseas assets are not diminished or engulfed by adverse currency moves. Distinct from our currency debt and asset management programmes, which seek to exploit currency cycles and trends “for profit”, thereby creating risk, our currency overlay services are designed to control unwanted currency risk, either by entering into strategies that seek to eliminate it entirely or to limit or reduce such risk - within acceptable and pre-determined boundaries. The two principal strategies, depending on a client’s core objectives, are referred to as being either “passive” or “active”. “Passive” currency overlay Passive currency overlay programmes are designed to reduce, or remove entirely, currency risk from an internationally invested portfolio. Clients can choose to remove any fixed percentage of a portfolio’s currency exposure through a tailored hedging programme. Our FX overlay team is tasked with monitoring our clients’ currency exposures as they evolve over time, and ensuring that the hedge ratio is maintained close to the target level, whilst reducing operational risk and minimising transaction cost drag. The objectives for the client under a passive overlay programme should be twofold: Firstly, one is seeking to achieve local market investment returns from the underlying assets, less the costs associated with the hedging programme. Secondly, the strategy should lower portfolio volatility, achieved by reducing or removing unwanted currency risk. Accordingly, clients can partially or fully protect themselves from foreign currency volatility and depreciation, but forego the opportunity to participate in any appreciation. “Active” currency overlay The main objective of active currency overlay programmes is to manage currency risk in order to add value to the overall portfolio. Our FX overlay team seeks to increase the hedge ratio applied to currencies that are expected to depreciate, thus protecting clients from adverse currency moves, and reduce the hedge ratio applied to currencies that are expected to appreciate, allowing clients to benefit from exposure to those currencies in the event they then appreciate. The main attributes of active currency overlay programmes are threefold: Firstly, exposure to currency risks in a portfolio is monitored, managed and controlled so that currency management decisions can be segregated from investment decisions appertaining to the underlying asset classes in their respective geographical locations. Secondly, by employing a specialist FX overlay team to manage the currency risk, an investment manager can focus entirely on underlying investment decisions in local currency, offering clients a diversification of manager risk. Finally, within a fund or large portfolio structure, administrative functions (like the monitoring of overall currency exposures, hedging policy and performance reporting) can be centralised at a higher level. This is particularly valuable for investors who have made allocations to several different fund managers or funds. Our active currency overlay services are offered to select institutional and corporate clients, tailored to their specific balance sheet exposure, risk preferences and other investment requirements. Our investment methodology for all active overlay mandates combines academic rigor, along with discretionary macro analysis and state-of-the art proprietary models, offering an eclectic combination of top-down and bottom-up process.
ECU Market Commentary ECU blog for Members of The ECU Group plc's Global Macro Advisory and Currency Management teams.Contributors include:Michael Petley - Chief Investment Officer & Chairman of the Investment CommitteeNeil Staines - Head of FX TradingProfessor Charles Goodhart CBE - Economic & Central Bank Policy AdviserGeorge ...More
Magnus - Senior Economic AdviserStephen Jen - Global Macro Policy AdvisorRobin Griffiths - Chief Technical StrategistSimon Hunt - Commodity Adviser - China and SE Asia
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