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Record Currency Management

PRI reporting framework 2019

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Investment process

HF 06. ESG data, research and other resources used

Please describe the ESG resources and tools used in your investment decision-making process.
Category of ESG
Reason for use
          All of our ESG metrics and scoring are produced internally using 3rd party data from sources such as the OECD, Fraser Institute and World Bank.
        
          
        
          
        
          
        
Select and explain how these resources are incorporated into the investment and risk management process?
Category of ESG
Investment/risk management process
Additional text (optional)
ESG data (proprietary, 3rd party, etc.)
          We have identified the ESG factors most pertinent to currency returns and integrated them into our decision making.
        

HF 07. ESG incorporation into quantitative and fundamental analysis

07.1. Does your organisation uses quantitative analysis?

Please indicate at which level ESG is incorporated into the analysis.
Quantitative modelling
ESG incorporation
Outcomes and assessment/review
          The impact of ESG is assessed both in terms of the improvement in the ESG credentials and on the performance of the portfolio.
        

07.2. Does your organisation uses fundamental analysis?

Please indicate at which level ESG is incorporated into the analysis.
Fundamental approach
ESG incorporation
Outcomes and assessment/review
          We apply an ESG-tilt to the Emerging Market currencies within our Currency Multi-Strategy portfolio. This tilt skews the portfolio allocation to EM countries with higher ESG scoring and away from countries with low ESG scoring. As a result, the ESG profile of the portfolio is improved without any detriment to the strategies overall risk-adjusted returns.
        

07.3. Additional information [OPTIONAL]


HF 08. Changes to the RI incorporation process over the past 12 months

08.1. Could you please indicate whether there have been any changes to your RI incorporation process over the past 12 months (e.g. additional resources, information sources)?

08.2. If yes, please describe them.

          We have been working on the incorporation of ESG since the beginning of 2018 and went live in December 2018 when we started applying ESG tilts to our proprietary capital invested in our Currency Multi-Strategy portfolio.
        

HF 09. Integration of Active Ownership

09.1. Please select and explain how active ownership practices are integrated into investment decisions.


HF 10. Examples of ESG risks/opportunities in investment decisions

10.1. Please provide examples of where ESG risks and opportunities were incorporated into the investment decisions over the past 12 months.

Hedge Funds Strategy
Global macro
ESG factors
Environmental|Social|Governance
ESG risks/opportunities
          The strategy takes a number of ESG related data series and uses these to generate signals of improvement or deterioration for each of the Emerging Market currencies in our Currency Multi-Strategy portfolio.
        
Financial risks
          The nature of our ESG factor scoring is such that some act over long horizons (e.g. improvements in education and health only impact the economy after the children who benefit mature and join the workforce). They are slow moving indicators that can be rebalanced on an annual basis leading to low portfolio turnover. Ultimately, our research has shown that incorporating such factors into our Currency Multi-Strategy framework results in improved strategy ESG credentials without detriment to portfolio risk-adjusted returns.
        
Scope and process
          A number of different data series were selected that relate to the UN Sustainable Development Goals. Data series were then tested such that only those that exhibit an association with currency returns were included in our scoring. 

Using only the factors that are qualitatively linked to productivity and currency returns, we then transformed the data series to ensure compatibility between the selected ESG factors. This enabled us to combine the factors into an ESG metric and, in turn, to over/under-weight those EM currencies that have the highest/lowest ESG metric scores.
        
Outcomes
          ESG signals developed by Record's proprietary model resulted in re-allocating capital away from countries with poor ESG credentials and towards those with better ones.
        

10.2. Based on your example(s) provided above, please specify whether the incorporation of ESG factors affected the risk-adjusted returns of your hedge funds.


HF 11. Derivatives products and ESG impact

11.1. Do you use derivatives instruments as part of your hedge funds strategies and/or Funds of Hedge Funds?

Please select all the applicable categories of derivatives used.
Listed/OTC
Category of derivatives

specify

          FX Deliverable Forward and Non-deliverable forward contracts
        

11.3. Could you please explain whether and how these derivatives impacted the risk-adjusted returns of your hedge funds investments?

Impact

Outcomes

          Record's currency-for-return products are entirely implemented using FX derivative contracts. As such, the impact of the ESG tilts on the risk-adjusted returns of our Currency Multi-Strategy portfolio is also entirely due to these contracts.
        

11.4. Would you indicate whether the use of derivatives triggered ESG risks/opportunities at the fund level?

11.5. Additional information [OPTIONAL]

          We use FX derivatives to exploit currency opportunities.
        

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