Last checked at 20 Apr 2018 07:00
RECORD PLCFOURTH QUARTER TRADING UPDATE
Record plc ("Record" or "the Company"), the specialist currency manager, announces today that the Group's assets under management equivalents ("AUME") as at 31st March 2018 totalled $62.2 billion (31st December 2017: $63.9 billion).
AUME expressed in sterling as at 31st March 2018 totalled £44.3 billion (31st December 2017: £47.3 billion).
1. AUME composition
AUME expressed in US dollars decreased by 2.7% between 31st December 2017 and 31st March 2018 and decreased by 6.3% when expressed in sterling. The composition of AUME by product was as follows:
AUME $ billion | ||
| 31st March 2018 | 31st December 2017 |
Dynamic Hedging | 4.3 | 4.5 |
Passive Hedging | 53.0 | 54.3 |
Currency for Return | 1.6 | 1.7 |
Multi-Product | 3.0 | 3.1 |
Cash & Futures | 0.3 | 0.3 |
Total | 62.2 | 63.9 |
2. AUME Movement
Net client AUME flows in the three months to 31st March 2018 by product were as follows:
Net client AUME flows - $ billion | ||
| 3 months to 31st March 2018 | 3 months to 31st December 2017 |
Dynamic Hedging | (0.1) | 0.1 |
Passive Hedging | (1.5) | 1.3 |
Currency for Return | - | - |
Multi-Product | - | - |
Cash & Futures | - | - |
Total | (1.6) | 1.4 |
Record had 60 clients at 31st March 2018 (31st December 2017: 60 clients). During the quarter Record was awarded, subject to contract, a Passive Hedging mandate representing $2.2 billion AUME, and signed a Multi-Strategy mandate of $0.3 billion, with both expected to fund in the current quarter. Record has been notified of the termination of a Passive Hedging mandate of $1.7 billion expected during the current quarter.
Other than client flows, the factors which have had an aggregate impact on AUME during the quarter of -$0.1 billion were as follows:
(i) Movements in global stock and other markets: -$1.4bnSubstantially all the Passive and Dynamic Hedging, and some of the Multi-Product mandates, are linked to stock and other market levels. Consequently AUME may be affected by movements in these markets.
(ii) Exchange rate movements: +$1.3bnExchange rate movements during the period affect the conversion of non-US dollar mandate sizes into US dollar AUME.
3. Investment performance
For US Dynamic Hedging clients during the quarter, hedging returns in the programmes were negative, as the US dollar weakened against the weighted basket of hedged currencies. Losses came primarily from hedging the Japanese yen. The Dynamic Hedging programmes performed as expected, and low hedge ratios in line with US dollar weakness allowed US investors to keep currency gains in the underlying assets.
Investment performance of the FTSE Currency FRB10 index (excess return in sterling) during the three months to 31st March 2018 was -0.65% (three months to 31st December 2017 was -0.09%). The FTSE FRB10 Index Fund continued to track the index closely, on a 1.8x geared basis.
Record's Emerging Market product investment performance was negative during the quarter and for an un-geared portfolio equated to a quarterly return of -0.73% (three months to 31st December 2017: return of +1.29%). Annualised performance since inception (30th November 2009) for an un-geared portfolio was +2.08% p.a.
Investment performance in the Multi-Strategy product that comprises the FTSE Currency FRB10, Emerging Market, Value and Momentum strategies was negative during the quarter as gains in Value were offset by losses in the Momentum, Emerging Markets and FRB10 components. For an un-geared portfolio, the return was -0.68% over the quarter (three months to 31st December 2017: return of +0.30%). Annualised performance since inception (31st July 2012) for Record's longest-standing Multi-Strategy mandate on an un-geared portfolio basis is +1.30% p.a.
4. AVERAGE FEE RATES AND PERFORMANCE FEES
During the quarter to 31st March 2018, fee rates for most products remained substantially unchanged from the previous quarter. No performance fees were earned in the quarter.
During the year to 31st March 2018, we have continued to innovate and enhance all our services to meet clients' developing needs. This is particularly true in Passive Hedging, where changes in FX market structure have allowed Record to enhance Passive Hedging programmes so as to minimise costs and to add value for clients. We have been working with our clients to identify and recognise this added-value, and as a result some Passive Hedging clients have changed from a management fee only to a lower management fee with a performance-related fee. This change creates the opportunity for Record to earn performance fees which over time are expected to match or exceed the foregone management fees.
The revenue effect from this change for the year ended 31st March 2018 is not expected to be material. For the year ending 31st March 2019, this change is expected to reduce total Passive Hedging management fee revenues by approximately 10% compared to the level that would otherwise have been expected to be earned, everything else being equal. The first performance fees capable of being earned under these changes would be earned in the year ending 31st March 2019, and if earned will be disclosed in quarterly Trading Updates in the ordinary course.
The continued innovation and enhancement of Passive Hedging services has also required a continuation of the investment in additional resources, as highlighted in the Group's results to 30th September 2017.
5. CHIEF EXECUTIVE'S COMMENT
Chief Executive James Wood-Collins, commenting on business development, said:
"Over recent years, a key driver behind Record's growth has been the increase in Passive Hedging AUME, and the business has worked hard to meet the challenges in achieving this growth.
"We have always offered a differentiated and customised service in Passive Hedging, and in this respect a key differentiator has been the trend towards offering continued innovation and enhancement of the product.
"This trend towards added-value for some Passive Hedging mandates has led to changes in two specific areas of the business. The first is the change in mix between management fee only mandates and management plus performance fee mandates. The second is the requirement for continued investment in our people and resources to maintain and support the level of service and innovation which underpins our unique offerings.
"We expect that these performance fees will more than offset the reduction in management fees over the longer-term, although the timing of performance fees alongside the additional investment in resources may reduce the operating margin of the business over the short to medium term. Over time we are confident that the continued enhancement of all our products including Passive Hedging will lead to further growth opportunities.
"Progress on Record's Currency for Return product has continued to be made with the seeding of a Multi-Strategy fund during the quarter and, as noted above, the signing of a segregated Multi-Strategy client expected to fund in the current quarter.
"We continue to engage with existing and potential clients on currency management strategies across Record's full product suite, and we are optimistic about making further progress in the current financial year."
Record will announce its financial results for the year ended 31st March 2018 on 15th June 2018 and its first quarter trading update on 20th July 2018.
For further information, please contact:
Record plc James Wood-Collins, Chief Executive Officer Steve Cullen, Chief Finance Officer | Tel: +44 (0) 1753 852 222 |
MHP Nick Denton Ollie Hoare
| Tel: +44 (0) 20 3128 8100 record@mhpc.com |
Notes to Editors
Record plc
Record is a specialist currency manager and provider of currency hedging services for institutional clients. Founded in 1983, Record has established a market leading position as a currency manager. Specifically, the Group has a leading position in managing Currency Hedging and Currency for Return for institutional clients.
The Group has four principal reporting lines:
- Dynamic Hedging, where Record seeks to eliminate the impact of currency movements on elements of clients' investment portfolios that are denominated in foreign currencies when these movements are expected to result in an economic loss to the client, but not to do so when they are expected to result in an economic gain;
- Passive Hedging, where Record seeks to eliminate fully or partially the economic impact of currency movements on elements of clients' investment portfolios that are denominated in foreign currencies;
- Currency for Return, in which Record enters into currency contracts for clients with the objective of generating positive returns; and
- Multi-Product, where the client mandate includes combined hedging and return-seeking objectives.
Record (LSE: REC) was admitted to trading on the London Stock Exchange on 3rd December 2007.
This announcement includes information with respect to Record's financial condition, its results of operations and business, strategy, plans and objectives. All statements in this document, other than statements of historical fact, including words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "will", "continue", "project" and similar expressions, are forward-looking statements.
These forward-looking statements are not guarantees of the Company's future performance and are subject to risks, uncertainties and assumptions that could cause the actual future results, performance or achievements of the Company to differ materially from those expressed in or implied by such forward-looking statements.
The forward-looking statements contained in this document are based on numerous assumptions regarding Record's present and future business and strategy and speak only as at the date of this announcement.
The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this announcement whether as a result of new information, future events or otherwise.