Tuesday, October 5, 2010
Mutual funds and currency return differences
First, because you might report performance to a client in their (base) currency will have no effect on how you include their account in a composite. How you report top a client is not necessarily the same as how you prepare your GIPS presentations. For example, a client may wish to see a benchmark which is different than you use in the benchmark; this is perfectly fine. Second, all accounts in a composite must have their returns in the same currency: you can't mix returns of different currencies in the same composite. You can always convert a return from one currency into another, so this isn't an issue. In this case, the entire fund is the account. Third, since the hedge was placed at the client's direction, the firm could, through their documented policies and procedures, consider this a non-discretionary action.
By the way, in yesterday's Wall Street Journal there was an interesting article on currencies, especially in relation to mutual funds. We'll discuss this further in a future posting. In the mean time I'm sure you'll enjoy the article.