FINalternatives is the premier, independent source for news on the alternative investment industry. They wanted to learn a little more about Currensee so they called our CEO, Dave Lemont, for the inside scoop. Here are a few questions and answers from the interview. The entire transcript can be found here.
Can you tell me something about Currensee?
We’re all about creating an alternative investment for the world’s currency markets, that’s the mission of the company. We’ve essentially created a completely new way to invest. We find emerging managers all over the world and then you…can build your own little fund of funds directly on the internet by selecting these Trade Leaders that we present to you—and by the way, we do a ton of due diligence on them...You pick them, you build your fund and in a single account, you can have multiple managers, and we replicate the trades from the managers’ accounts into your account.
The other cool thing is, because it’s foreign currency trading, it’s not correlated to the stock market. It’s very much of an alternative investment. And based upon how volatile the stock market has been this year, people need alternative investments. And the other beauty is, you don’t need to know anything about foreign currency trading—all you need to know is how to read a performance chart on risk and reward, the same as you’d read a performance chart when picking a mutual fund. It’s a very powerful alternative investing tool….And the returns have been very exciting. It’s really possible to build a very exciting portfolio for yourself or select a single Trade Leader, as we call them.
How do you choose your Trade Leaders? What criteria do you use?
We’re looking for emerging managers, and by emerging managers I would say these are professional people that have experience managing money —somewhere in the $1 million to $25 million range. Not that we would reject someone managing more, but we’ve also found that people managing tons of money no longer have the returns. And so we’re looking [for managers] at the right stage of their career, where they’re building their career and essentially, their challenge is gathering assets, but they’re fantastic traders…They do it all day long, it’s their only job, it’s the way they make an income. We give them the platform to gather the assets and they do what they do best. We take care of the rest.
As for the Trade Leaders, let’s face it, we’re picky. We’re looking for managers who have strong returns, meaning the returns should be anywhere from 1% to 10% per month, but their drawdowns are below 20%, hopefully below 10% in terms of the maximum drawdown that they would ever experience…And the most important thing, I would say, is people that manage their own money in a very disciplined manner, by that I mean, if they have a strategy that says, ‘I’m willing to risk 1% of my account on my trading day,’ that when they’re losing, they close. When they’re winning, they take their profits. Somebody that has a strategy and they exhibit to us that they are honoring that strategy to the ‘T.’
Now, the way we do due diligence is, we have a pretty strict process they have to follow: We interview them, we review their risk management practices, we run background checks, we invest with their system, with our own dollars, in a live account, and…we make sure that what they say they’re going to do is what they really do. And then we test the replication side of it, so we need to make sure that when we replicate their trades from one account to another that our correlation is strong.
Who is your target client?
One is [the] foreign currency traders…that aren’t very effective on their own…and they’re looking to diversify their trading by following someone who’s a great trader. Most Forex traders lose money and our program gives them a way to be in the market by putting Trade Leaders to work for them. But the bigger market that we’re after is what I would call the ‘active investor.’ The active investor is someone who, he may trade managed futures or ETFs, or he’s very active with his financial advisor, and he’s always wanted to take advantage of foreign currency markets but he doesn’t know how to trade. He wants to participate in alternative investments, and we’re perfect for him.
The other market [is] institutions. We continue to build partnerships with large hedge funds, family offices, funds of funds, and other asset gatherers. These folks are simply looking for great traders that offer alternative investments, and they love the fact that we allow the risk to be controlled…
What kind of risk control do you offer?
There are three risk controls: an overall drawdown control, that when you’ve lost a certain amount, the system will stop. An open drawdown control, so just the open positions tracking and then a leverage control that allows you to de-lever, so, if the Trade Leader trades like, 5 to 1, you could say, ‘I only want 50% of that,’ now it creates a 2 and ½ to one leverage. If the customer is a high-net-worth person who signs a special contract, they’re allowed to lever up. But only if they sign a contract that says they understand the risks. So they may say, ‘Well, this guy is pretty conservative, I might take a little more risk than he takes and double the size of his trades.’ And we’ll allow you to do that, but you must sign a special agreement for it.
In our software, if you were to follow Trade Leader 1 and Trade Leader 2 and Trader Leader 3 in your single account, we allow you to set drawdown controls on each one of these leaders, and even the amount of leverage they control. So, you can say, ‘I don’t ever want to lose more than 5% or 10% or 2%’ and then, if that were to happen, we shut the system off….Part of trading is not just winning but controlling when you lose and [trying to ensure] that the day you lose is not such a terrible day that you can’t recover from it.
These controls are extremely popular with the high-net-worth and the institutional market for us. When a pair that a Trade Leader trades—foreign currency traders trade the dollar/Swiss or the dollar/yen—feels too volatile, the investor or asset manager can say ‘I don’t want to see any trades from this pair in my account today,’…You are able to have that level of control.
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