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New world currency index launched on Sun Oct 24, 2010 7:23 pm
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New world currency index launched
By Steve Johnson
Published: October 24 2010 12:30 | Last updated: October 24 2010 12:30
Overlay Asset Management, a $20bn foreign exchange manager, is launching a currency basket it claims represents a “virtual world reserve currency”.
Its Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity.
In contrast the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies.
Overlay says the hedging tool has attracted the interest of sovereign wealth funds, particularly from the Middle East and East Asia, pension funds, insurance companies, wealthy individuals and family offices, while a number of central banks are purportedly keen to use it as a benchmark for their forex reserves.
“The idea is not really to make money, it is to preserve your worldwide purchasing power. It is a wealth preservation strategy over the long term,” said Hélie d’Hautefort, chief investment officer of Overlay, a division of BNP Paribas, which is co-managing the index.
Overlay’s rationale is that investment portfolios are often heavily exposed to the dollar, but many investors have doubts as to whether the greenback can retain its value and remain the world’s primary reserve currency.
However, hedging back to an investor’s base currency is unattractive, it argued, because “no single currency seems safe under the current market conditions and hedging into any one of them may be dangerous”.
Instead, Overlay said, risk was reduced by hedging to all 15 currencies in an index that was a “close proxy” to what a world reserve currency would be, were it to exist. “There is a currency war. If you think there is a trend for emerging market currencies to appreciate or at least for the volatility of currencies to fluctuate a lot, your best interest is to switch your base currency into a basket of currencies because you have less risk,” said Mr d’Hautefort.
The index is available in either funded or unfunded formats.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
http://www.ft.com/cms/s/0/e80e10c6-d...44feabdc0.html
By Steve Johnson
Published: October 24 2010 12:30 | Last updated: October 24 2010 12:30
Overlay Asset Management, a $20bn foreign exchange manager, is launching a currency basket it claims represents a “virtual world reserve currency”.
Its Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity.
In contrast the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies.
Overlay says the hedging tool has attracted the interest of sovereign wealth funds, particularly from the Middle East and East Asia, pension funds, insurance companies, wealthy individuals and family offices, while a number of central banks are purportedly keen to use it as a benchmark for their forex reserves.
“The idea is not really to make money, it is to preserve your worldwide purchasing power. It is a wealth preservation strategy over the long term,” said Hélie d’Hautefort, chief investment officer of Overlay, a division of BNP Paribas, which is co-managing the index.
Overlay’s rationale is that investment portfolios are often heavily exposed to the dollar, but many investors have doubts as to whether the greenback can retain its value and remain the world’s primary reserve currency.
However, hedging back to an investor’s base currency is unattractive, it argued, because “no single currency seems safe under the current market conditions and hedging into any one of them may be dangerous”.
Instead, Overlay said, risk was reduced by hedging to all 15 currencies in an index that was a “close proxy” to what a world reserve currency would be, were it to exist. “There is a currency war. If you think there is a trend for emerging market currencies to appreciate or at least for the volatility of currencies to fluctuate a lot, your best interest is to switch your base currency into a basket of currencies because you have less risk,” said Mr d’Hautefort.
The index is available in either funded or unfunded formats.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
http://www.ft.com/cms/s/0/e80e10c6-d...44feabdc0.html