Currency manager Record Plc is sticking to an investment strategy that has delivered negative returns, sent clients fleeing and hammered its shares while it waits for foreign exchange markets to turn. Record has been pursuing a strategy which aims to make money by exploiting differences in global interest rates.
Neil Record, who is chairman of the firm he founded in 1983, said in an interview that this approach would prove profitable in the long term.
"I am pretty convinced that we do not have to change (our strategy) fundamentally and therefore in the alpha product our best policy is to wait until the markets turn around," he told Reuters, without saying when the turnaround is likely to happen.
Record's strategy involves borrowing in currencies of countries with low interest rates and investing in higher- yielding currencies to profit from the difference.
Returns, however, have tumbled since the 2007 credit crunch that led to scores of central banks slashing borrowing rates to fend off recession - which Record said created unusual market conditions that hit performance hard.
Despite the outflows, the company has remained in profit. The boutique, whose shares have fallen by about 40 percent so far this year, is not alone in turning negative returns from active currency management strategies meant to get above-market performance. Funds run by larger rivals such as Investec, Goldman Sachs, Amundi and Nomura also posted negative performance in the year to the end of March, according to Lipper Global data.
Some of Record's clients ran out of patience when monetary policies in the world's biggest economies started to look increasingly similar, and have been steadily withdrawing their cash for more than a year.
Compounding these falls, Record could now face more client demands for fee cuts after the firm negotiated last month a change with a big customer that will dent profits for the next financial year.
"I do not expect it, but I cannot rule it out. I do not feel any unusual degree of vulnerability," said Chief Executive James Wood-Collins, who took over the role from Neil Record last year and was also at the interview on Tuesday.
J.P. Morgan Cazenove analysts called the fee negotiation "a further and frustrating blow", but added it was "one of the last likely to be suffered." The mixture of poor returns in its absolute return product range, client outflows and fee cuts have helped to push Record's shares down to about 21 pence from 36.25 pence at the beginning of January. Record listed in 2007 at 161 pence.