FX Concepts – back to basics

FX Concepts, founded by John Taylor in 1981, was once the poster boy for currency funds as the world's largest foreign exchange manager, but when the Greek crisis hit the eurozone in 2011, trends in FX markets disappeared, knocking currency managers hard.

The fund struggled as its size gave it little room to manoeuvre against smaller and nimbler counterparts. It was a hard fall for the firm, which had more than $14 billion under management at its peak in 2007, but only $621 million by 2013. That year it closed its shutters for the final time after the San Francisco Employees' Retirement System withdrew its investment, which made up 66% of the fund's remaining assets.

The demise of FX Concepts illustrated the wider picture of currency managers struggling to attract investment and became a symbol of their downfall. According to the Bank for International Settlements, assets at quantitative currency funds plunged from $35 billion in 2008 to around $6 billion in 2013.

In the aftermath of the fund's closure, little was known about Taylor's future plans, apart from a note sent to clients last year, highlighting his intention to continue in the industry. But, despite a period of absence from the public arena, he says he never left FX.

"We didn't miss a day," he says, between the fund's closure and the research business kicking off. "We had contracts with clients who needed to be cared for, and we wanted to build something new and bespoke, as exists in equities."

We wanted to build something new and bespoke, as exists in equities

FX Concepts News

Even before the fund's collapse, Taylor was building his research and advisory service, FX Concepts News, which he refocused on in 2010. This was soon to be rebranded Taylor Global Vision.

"I sold a big portion of my stake in FX Concepts back in 2010, and was less and less involved in managing the money, as the research and advisory service was the area I was most competent in and interested in pursuing. That was how I originally started before the hedge fund business really got going in 1987," he continues.

Cyclical models

Taylor comes from a quantitative and mathematical background. He studied psephology, the study of political polling, at the University of North Carolina as a graduate and later moved that expertise and knowledge to financial markets. But he claims the cyclical models he designed were not used for the funds at FX Concepts.

"We had several areas of the firm that were core investment areas – our algorithmic trading models, the fixed income, currencies and commodities programme, and the macro fund, which was just focused on FX. The latter fund was the area we struggled with towards the end of FX Concepts. Unfortunately, FX Concepts never used my cyclical models for the funds, but now they are central to our analysis. The models we operate now and even used for the newsletter back then weren't designed for any of these trading funds," he says.

Advisory service for buy side

Taylor's advisory service is now fully up and running, with about 200 buy-side firms receiving anything from a daily newsletter with six individual articles on different asset classes to fully hands-on trade discussions on particular macro events looming on the horizon. Annual subscription costs range from $15,000 to $100,000.

"I called the EUR/CHF collapse – some made a ton of money off my advice, some didn't want to listen. I have other big calls for this year, but I'm not telling you what they are!" Taylor says.

"We've had some clients for 15 or 20 years, and many of them came back to the research business in the aftermath of the hedge fund collapse. Right now we talk to nearly 200 buy-side clients, offering anything from the daily newsletter to on-site advice and trading strategies," he continues.

Together with Joe Palmisano, former senior financial markets analyst and portfolio manager at FX Concepts, Taylor writes research six times per day, identifying key trends and investment strategies for the buy side. Mairi Bryan, a veteran FX salesperson, is running the sales operation from their office in New York.

"Looking at the macro space now, I am not positive at all, but extremely happy to go short. No G10 country is properly prepared for the next recession with the amount of world debt there is, so I can't see the US raising rates this year and I expect the equity market to top by June," says Taylor.

"As it stands right now, the historic methods used to fight a downturn are no longer available. This is true not only in the US, but in every one of the six developed countries among the world's top-10 economies," he adds.