How do wealth managers approach the currency markets and what sort of advice do they give? This publication recently quizzed David Joory, managing partner and co-founder of Bedrock, the private investment office.

Editor’s note: The recent volatility in foreign exchange markets, and efforts by the Swiss authorities to cap the country’s strong currency, have reminded investors that forex is very much a source of risk – but also return. So how are wealth managers approaching the currency markets these days and what sort of advice are they giving? This publication recently quizzed David Joory, managing partner and co-founder of the Geneva and London-based private investment office Bedrock, for his views.

The Greek/eurozone debt crisis has put the focus on currency fluctuations. How big a role has this played in driving attention onto the issue?

Definitely a lot; we believe that currency allocation is more important today than asset allocation due to these events.

When you meet with clients, what are the main questions they raise about currencies? 

What do we think about the euro and what are the other alternative currencies we should have?

Where do you see a need to increase client awareness of currency issues and why?

We believe that clients do not realise how much the currency choice can affect their performance, and even worse, how much this choice they make will protect or detract from their purchasing power.

From which part of the world are clients making particular currency request? 

I would say that it is more a question of which reference currency they use rather than from where they are.

Has the job of hedging currency risk got harder/easier in recent years? Although the euro replaced around a dozen national currencies, have other complexities arisen?

Hedging was essentially easier until the crisis of 2008 happened. After that, as all the developed countries embarked in a very large monetary stimulus programme and piled on debt, it became a chase for the “least bad currency”. And since 2008, it has been a game of musical chairs really (which currency will drop the fastest or the least). Today, there is a marked preference for the dollar, but how long will it last?

Do you help clients arrange loans and other debt deals in different currencies? Are there any trends?

No, we have not seen demand for that.

Are emerging market currencies more important for this work these days? Any specific examples?

Sure. For instance, the emergence of China, Brazil, Singapore as global economic power houses, which have much better fiscal positions than the developed countries, helped drive massive flows into their currencies. This, in turn, has created problems for those countries, as witnessed in Brazil where the government had to intervene in order to stop the massive overvaluation of the Brazilian real.

But these currencies definitely remain a favourite pick of wealth managers and clients alike.

Swiss firms have, of course, had to contend with a strong Swiss franc, despite the efforts of the Swiss National Bank. How big an issue is this for Swiss wealth managers and Swiss-based clients?

An enormous issue; Switzerland is a small market. So the majority of Swiss wealth managers receive their fees in dollar or in euros, while maintaining their expenses in Swiss francs. Last year, before the SNB intervention, the franc had appreciated by 30 per cent against both these currencies; you can imagine the extent of the pain if those wealth managers did not hedge themselves. As for Swiss-based clients, it was certainly very good to be invested in the world’s strongest currency. But if you didn’t diversify away from the franc, you would have had a 20 per cent loss on your holdings the day of the intervention! It shows you how diversification is key and how a good or bad mix of currencies can affect your portfolio or performance.

Do you have any currency predictions for the next six months/year?

A. We continue to believe in a stronger dollar on a six-month basis and a lower euro. We also remain confident in some emerging market currencies.