JPM: Demand for currency hedging has increased across the board (Part 1)
Hans Jacob Sverdrup Feder (pictured) joined JP Morgan in March to take the helm of the bank’s Nexus trading platform. Over the past 12 months, the notional value of trading has doubled as an increasing number of institutional investors get comfortable with automation and the self-structuring of products. In the first of two articles, SRP spoke to Feder about his mandate, what is driving the activity at Nexus and how the platform is responding to demand.
What are your responsibilities at Nexus?
I joined JP Morgan to run the Nexus platform, which is a derivatives trading and wrapping platform that delivers the performance of a wide range of client-specified strategies in a variety of investable formats. The platform allows us to identify trends and react to client demand.
It is a cross-asset platform in nature, but within a cross-asset set up there are a number of things issuers can do, such as providing access to the futures market globally, for instance. Our plan is to increase the flexibility of the platform so that clients can do more and we leverage the infrastructure capacity of the bank.
What type of pricing requests are driving activity at Nexus?
We have noticed, in recent months, an increase in demand for currency hedging across the board from more retail type products to large institutional investors. Investors want to hedge their currency exposure in an efficient and transparent manner. We have also seen increased demand for equities, driven by a need for more upside than presented by bonds, as well as an increased interest in equity hedging strategies due to increased uncertainty around a possible correction.
What is the risk profile of those investors using Nexus?
We have seen an increase of private banks accessing the platform and requesting pricing related to structured certificates. This is a reflection of those firms wanting to provide their strategies in a transparent and cost efficient manner. In the current low yield environment, equities and risk factors can offer ways of getting exposure to assets that can provide a potentially attractive return stream. We can see that the activity on the platform has increased in relation to market events, such as the recent fall in value of German bunds which pushed institutional investor to look at ways to hedge their exposures.
Do you have any specific plans to develop the platform further?
The platform is geared to the buy-side and it’s targeted mainly at pension funds, institutional investors and private banks, but we are constantly looking for ways to widen its scope and add others, such as hedge funds, as we can offer a very effective and efficient tool for those types of firms. Many active asset managers are getting slightly squeezed by the whole ETF/passive investment story. This is an area where we can help sophisticated investors with long/short strategies, while leveraging our capabilities and making available more tailored hedge-fund like strategies.
We want to increase the footprint of the platform and we have a very strong sales force behind it. Our plan is to grow the capabilities of the platform from an institutional investor perspective. Our approach is somehow measured when it comes to development of click and trade tools for investors.
Is Nexus ready to capitalise on the ‘smart beta’ trend?
There is now a broader universe of risk factors available from many banks, and this story is now resonating among investors. The increased transparency in pricing around factor indices has increased the scope of this segment and, as investors now can access a full universe of factors, they can express their views with products linked to different factors. The issue now is how to combine them effectively to target market premia and build balanced portfolios. Risk factors also allow investors to look differently at the investment universe, and use factors to express their views on the market. It is, thus, important to provide easy access to those strategies as investors need flexibility to effectively express their views.
What other areas are drawing the attention of sophisticated investors?
Risk premia investment has gained in popularity with investors as a form of alternative investment. Investable risk premia indices may become to hedge funds what exchange-traded products are to active asset managers. There is a clear demand for active management but there is also a significant demand for low cost products that can provide alternative return streams.