Swiss banking colossus UBS is outsourcing a major portion of its proprietary foreign exchange allocation business to Tradex Capital Markets, a Greenwich, Conn., currency manager. The affected sum, believed to be less than $1 billion is nevertheless “a substantial portfolio...one of the largest FX allocation programs out there,” according to an individual familiar with the deal. A UBS spokesman declined to comment.
The UBS portfolio will be managed alongside Tradex’ multi-advisor allocation program and customized for risk parameters. Tradex will select the managers and perform due diligence. Tradex Chairman Rony Schläpfer and Chief Investment Officer Stephen Jury declined to discuss specifics, but acknowledged the firm is seeking to manage FX portfolios for outside firms. “Going forward we will be looking to approach asset managers to create customized portfolios,” said Jury. “That’s really the direction we’re trying to take the firm.”
Martin Evans, professor of economics at Georgetown University who specializes in foreign exchange-rate dynamics, said the deal is logical given the recent direction of the FX markets. Electronic exchanges and increased competition have squeezed spreads between inter-bank rates and market rates—an arbitrage opportunity in which banks historically had a virtual monopoly. Banks have thus far been forced to seek alpha through trading, an area where they have been outpaced by hedge funds and other currency specialists. Outsourcing this part of the business then, makes sense, Evans reasoned. “It seems completely credible to me that somebody could make that decision.”
