was once considered one of the world's top-five FX traders.
Now managing currency hedge fund company Hathersage, he
talks to Helen Avery about why FX
is catching the eye of institutional investors and how he
sees the trend developing.
"ONCE A DEALER, always a dealer", was once the motto of the Association Cambiste Internationale
, the international society of foreign exchange dealers headquartered in Paris.
For Bill Lipschutz, principal and director of portfolio management for currency hedge fund company Hathersage, nothing could be truer.
Lipschutz joined Salomon Brothers as a newly graduated MBA in 1982 when foreign exchange trading was the realm of commercial banks, and in just six years he built an unparalleled FX trading business at the investment bank.
By the mid-1980s Salomon heldat that time the premier marketplace for FX options trading.
By the end of the 1980s, Salomon
was making as much money with 21 traders worldwide as Citibank was with 70 dealing rooms, and Lipschutz
was regarded as one of the world's top-five FX traders.
position as managing director and global head of FX
in 1990 it was with the intention of taking early retirement.
But within 14 months the lure of the markets was too much and Lipschutz
and a team from Salomon set up their own currency trading hedge fund company.
"I was taking a few courses at NYU
, Lewis [Broad] and I were doing a bit of trading on our own account and thought why not try this as a business with more personal flexibility than we would have at a large company," Lipschutz
Lipschutz is the principal trader, operating out of his spacious apartment in New York's trendy NoHo precinct where he has lived since his days at Salomon Brothers.
It's where he
invites clients, and as such it seems more of an office than a home.
There is the obligatory black leather couch, the works of art on the wall and a handful of trading screens and telephones.
The seven other employees - a second trader, a risk manager and compliance officer, a director of research, a director of client services, two trade support people and an IT manager - are located elsewhere in Manhattan, on Long Island or in Connecticut.
All met as students at Cornell University
, at Salomon
or socially and have known each other well for almost 20 years.
"Most of us started out at big firms," says Lipschutz
"We decided that we wanted this to stay small, geographically flexible and extremely focused.
Each person's role is very specific and each person is very experienced and very good at what they do.
In the early 1990s even a small operation had to have formal offices and lots of visible support staff - I call it 'the mahogany and marble on Park Avenue look' - in order to begin a dialogue with institutional investors.
That isn't the case now - large or small, virtual works."
When Lipschutz and his colleagues founded Hathersage it was easy to be small.
There is no long or short," says Lipschutz
Studies also suggest that currency markets have no beta and that all profits derived from trading FX
in active management are considered to be from alpha or manager skill.
That makes it extremely attractive to institutions wanting to port alpha onto other asset classes.
"We are looking at possible structures with commercial banks that hold portfolios of bonds," says Lipschutz
"They are looking at holding bonds whose coupons would be indexed to Hathersage's
trading in FX
Lipschutz is a discretionary trader, trading solely in G7 currencies; he believes such trading has recently become more attractive to investors.
"When I came into the market there was no on-desk computing power," he
also argues that most systems have an inherent bias in them, leading to certain kinds of trades.
"It is well acknowledged that the most profitable market environment for FX
trading is a trend - in particular a trend that unfolds over a medium- to long-term time horizon," he
predicts that institutional investors, rather than entering the currency market through fund vehicles, will opt to invest through managed accounts.
Funding makes much more of a difference in FX
than, say, equities.
is set up to offer only managed accounts for a variety of reasons.
Managed accounts allow each mandate to be tailored to the individual client and have enabled the firm to focus on trading, rather than portfolio valuation and handling of money.
"An investor can set up their account at the financial institution of their choice, which will then extend them the terms of collateral for that account," Lipschutz
says: "In FX
, the collateral required by banks can range from none to 3% depending on an investor's relationship with the bank.
has grown up with the options market.
"When I started, the equity options market was undeveloped, the FX
options market was non-existent," he
"We all think we're smarter than the market from time to time," Lipschutz
says, "and traders really do get married to their positions.
As the market is growing, Lipschutz
himself finds his
firm in a difficult position.
was set up to focus solely on trading, offering a small number of clients a personalized service.
Lipschutz clearly lives to trade, indeed there would be little to stop him from taking on more assets if he
wanted to grow the firm.
has the experience of running $3 billion to $5 billion in open positions after all.
"It's not about the zeros," he
"We know that our approach works with big numbers."
As a result, Lipschutz
partners haven't been actively marketing their services, but it seems inevitable that the firm will have to reconsider its stance.
This partly explains Lipschutz's decision to return to the public eye.
More than most, he
knows that in times of competition money talks.
says: "To be a relatively small player puts a lot of demands on your service providers - the sell-side banks and other financial institutions.