Ian Hamilton

This column is authored by Ian Hamilton, who is the founder of IDS Group. IDS provides fund administration services in Africa and Europe through Malta. He is also the founder of Scotstone Investments, a company that has fund structures and services for global emerging new managers.

The Swiss Franc "black swan" is an interesting situation but I am not so sure it really is a hedge fund event.

In the not-so distant past, I had the responsibility of setting up and running a forex desk in a major financial mining house that earned income in multiple currencies. It was not such an easy dealing task, as in 95% of the situations we were sellers. Banks were also not keen to take on some of the deals because of the size and also because of an ever strengthening domestic currency.

But we laboured on and did quite a bit of forward hedging. The overall premise was that the dealing desk was not there to speculate but to facilitate the certainty of the cash flow.

We made our own in-house decisions on currencies and ignored the bank’s advice. The banks were advising clients to "speculate" by leaving forward obligations uncovered and even encouraging the taking out of uncovered international loans.

A few years later there was a major currency collapse, to the extent that one of the major banks came close to going to the wall and had to be bailed out by its major shareholder.

Hence my conservatism, currency trading is to facilitate trade. Business should do no more than seek good exchange rates, good hedging for future outflows and inflows of foreign currency.

But what has happened in the markets is the rise of currency trading speculation of a ......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.