More banks putting capital into research

Jake Moore, a foreign exchange analyst at Barclays Capital in Tokyo, has managed the forex portfolio since January 2003 on a simulated basis. Following a return of 8.2% in 2003, the bank will begin trading on its portfolio this year.

The weekly update on the portfolio is sent to the proprietary desk, hedge funds and real-money managers. Some clients trade directly on the report, but most, including the bank’s prop desk, use it as an extra part of the strategy product, said Moore.

Another analyst at a mid-tier European bank also looking into the practice said he has been desperate for the opportunity to trade "and show the value of what I produce".

However, not all banks are convinced that operating a portfolio -- with or without bank money behind it -- is wise. Mark Austin, chief currency strategist at HSBC in London, said the bank has chosen not to manage an example portfolio, as clients’ risk parameters, time horizons and currency exposures vary so widely. The bank does offer directional calls on spot rates, combined with detail on the underlying volatility of the pair and a weighting to underline the conviction of their view.

These trade recommendations are generated from HSBC’s analysts around the world, based on quantitative, political, economic, flow and technical factors, which are assessed in London before being sent to clients. These directional calls are often picked up by HSBC’s structuring desk, which applies them to client’s risk/reward preferences.

Strategists at other banks say despite the differing needs of clients, they have seen huge interest in their recommendations.

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