Trading Update

RNS Number : 2712G

Record PLC

21 October 2008

 

21 OCTOBER 2008

RECORD PLC

SECOND QUARTER TRADING UPDATE

Record plc ('Record' or the 'Company'), the specialist currency investment manager, announces today that as at 30 September 2008 the Group's assets under management equivalents ('AuME') totalled $47.8 billion (30 June 2008: $56.2 billion).  

1   Aume movement

The largest component of the $8.4bn fall in AuME during the three months to 30 September 2008 was the foreign exchange impact of expressing non-USD AuME in USD. This accounted for $4.9bn (58%) of the reduction as the USD strengthened from $1.99/£1 at the 30 June 2008 to $1.78/£1 at the 30 September 2008 and has no corresponding implications for fee income (in GBP).  

AuME Movement during 3 mths to 30 September 2008
	$ billion
AuME 30 June 2008	56.2
Exchange Rate Impact on USD AuME	(4.9)
Pooled Fund Investment Performance	(2.6)
Movement in Global Stock & Other Mkts	(0.8)
Net Client Flows	(0.1)
AuME 30 September 2008	47.8

(i)                  Exchange rate impact on USD AuME                                                -$4.9bn
Exchange rate movements during the period affect the conversion of non-USD mandate sizes into USD AuME which resulted in a reduction in the USD AuME valuation during the quarter and was the most significant factor influencing the USD AuME valuation in the quarter.

(ii)                Pooled fund investment performance                                                         -$2.6bn
                                                                                                     Investment returns are compounded on a geared basis into the AuME of the pooled funds managed by Record. This had a negative impact in the quarter.

Investment performance in Record’s Absolute Return product was negative by 2.47% for an un-geared portfolio over the quarter as a whole. Marked declines in a number of higher yielding currencies and continued concerns over credit negatively impacted Absolute Return investment performance.

(iii)               Movements in global stock and other markets                                         -$0.8bn
                                                                                                     Substantially all the Passive and Active Hedging, and some of the Absolute Return mandates are linked to stock and other market levels. Consequently Record’s AuME is affected by movements in these markets which had a negative impact in the quarter.

(iv)              Net Client Flows                                                                                              -$0.1bn

            Net client flows reduced AuME by $0.1bn during the quarter (see below for further analysis).

Net Client AuME flows - $ millions
	3 mths to 30 September 2008		3 mths to 30 June  2008
Absolute Return
Segregated	(1,001)		(454)
Pooled	(133)		391
Absolute Return Sub Total		(1,134)		(63)
Active Hedging		912		200
Passive Hedging		71		(1,085)
Cash & Futures		76		17
Total		(75)		(931)

The reduction in segregated absolute return AuME arose in large part from one client reducing a mandate size by $1.2bn in response to the volatility of global markets, and a desire to limit risk. This client continues to retain Record for a $1.2bn absolute return mandate.

2    AuME composition

Although AuME has declined, Record has continued to grow client numbers which rose to 150 clients at 30 September 2008, compared to 147 at 30 June 2008.      

The composition of the AuME by product at 30 September 2008 was as follows:

AuME $ bn
	30 September 2008		30 June 2008
Absolute Return
Segregated	12.0		13.9
Pooled	12.1		16.5
Absolute Return Sub Total		24.1		30.4
Active Hedging		5.9		5.3
Passive Hedging		15.2		17.4
Cash & Futures		2.6		3.1
Total		47.8		56.2

3    AVERAGE FEE RATES 

Average management fee rates were maintained during the quarter to 30 September 2008 but  no performance fees were earned on Absolute Return strategies. 

Chairman and CEO, Neil Record, commenting on trading, said 'The quarter to 30 September 2008 has been exceptionally challenging. The two main challenges have been the renewal of strong 'anti-carry' (risk aversion focusing on higher yielding currencies) and the resurgence of serious concerns over both the solvency and liquidity of many of the world's major banks - our trading partners in the foreign exchange markets.  

The 'anti-carry' currency movements were the principal cause of the negative Absolute Return performance in the quarter, although the scale of the negative performance has been mitigated by Record's risk-control processes.  'Anti-carry' currency market behaviour has meant strong falls in the price of higher interest rate currencies (Sterling, Australian Dollar and Euro), and rises in the price of lower interest rate currencies (Yen, US Dollar).  Much of the quarter's investment underperformance occurred in August and (to a lesser degree) September.  The large adverse currency movements in the quarter have the effect of allowing our clients to start to benefit from our investment process from more advantageous levels. 

We execute our currency investment process in the forward foreign exchange market.  This relies on short-term credit - particularly between the banks themselves - to operate efficiently. In the exceptional conditions of the latest leg of the 'credit crunch' the operation of the market has been disrupted, and it has been a major challenge for us to find creditworthy counterparties with whom we (on behalf of our clients) are able to conduct currency trades at market prices.  In the quarter we have been successful in conducting our business with creditworthy counterparties. 

We have reduced the size of our bank counterparty panel as a number of former members of the panel have been downgraded below our minimum credit quality and/or have experienced exceptional credit degradation.  We have though been able to add some new panel members, such that our panel comprised 20 banks at 30 September 2008, compared to 21 at 30 June 2007.  

I am pleased to note that Record has suffered only modest net client outflows in the quarter, with gains in Active Hedging almost offsetting Absolute Return losses on an AuME basis. Much of the quarter's investment underperformance occurred in August and (to a lesser degree) September. Given this and the considered decision-making processes of our predominantly institutional clients, we would not be surprised to experience further Absolute Return outflows in the coming months.  We continue to enjoy good levels of new client enquiries, in particular for Active and Passive Hedging.

Much of the decline in Record's AuME has resulted from translation exchange rate movements, which, thanks to the UK base of many of our clients, has no fee implications in Sterling terms. Client numbers have increased in the quarter, and we maintain strong relationships with key investment consultants, who continue to support us and our investment process and philosophy, despite the exceptionally difficult environment and poor recent investment performance.  

The announcement of the Company's results for the half year ended 30 September 2008 will be made on Tuesday 25 November 2008.

For further information, please contact:
Record plc	Tel: [phone]
Neil Record
Mike Timmins
Hogarth	Tel: [phone]
Nick Denton
Julian Walker

  Notes to Editors

Record plc

Record is a specialist currency investment manager and provider of currency hedging services for institutional clients. Founded in 1983, Record has established a market leading position as a currency asset manager. Specifically, the Group has a leading position in managing currency for absolute return for institutional clients, a new asset class which the Directors expect to continue to increase in popularity with institutional investors, including defined benefit pension schemes, both in the United Kingdom and overseas.

The Group has three principal product lines:

• currency for absolute return, in which Record enters into currency contracts for clients with the objective of generating positive returns;

• active 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; and

• passive hedging, where Record seeks to eliminate fully the economic impact of currency movements on elements of clients' investment portfolios that are denominated in foreign currencies.

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.  

 

END

 

 

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