StoneX Pro is a leading global provider of FX trading and liquidity solutions for financial institutions, delivering institutional-grade market access and end-to-end clearing and execution services. Global Head of Institutional FX, Eric Donovan, chats with Hedgeweek about the current economic landscape and its impact on the hedge fund market.
HW: How are current economic conditions affecting the hedge fund market?
ED: The landscape couldn’t be more fascinating. Interest rate volatility has reawakened asset classes that seemed dormant for over a decade. However, it’s a double-edged sword. We’re seeing an entire generation of portfolio managers facing a scenario they’ve never navigated before, with rates departing from zero. The FX rates are exhibiting movements we haven’t witnessed in decades. The euro, pound sterling, and yen, for instance, are undergoing rapid and substantial fluctuations. This environment presents both threats and opportunities, depending on one’s proficiency in the foreign exchange markets. Additionally, the persistent theme of geopolitical instability underscores the necessity for adept FX trading capabilities.
HW: With the market’s inherent uncertainties, what do you perceive as the paramount risks for StoneX and your clients?
ED: Our stance as an FX dealer is one of neutrality concerning directional market risk. Our clientele is generally astute in risk management, but the recent US bank failures underscored an alarming revelation: several substantial entities are not effectively managing their exposures. The pursuit of market-beating returns necessitates delving into asset classes where one’s expertise lies. The heightened sense of risk revolves more around the “unknown unknowns.” Long-standing assumptions about interest rates, inflation, FX exposures, and political risks are unravelling after 30-40 years, which can be disconcerting for our clients.
HW: Amid these challenges, where are you pinpointing the most substantial opportunities for growth in the upcoming year?
ED: Our FX operations in Asia, particularly Singapore, are a beacon of growth. We’ve channelled significant investments into human capital and cutting-edge FX trading infrastructure in the region. In terms of products, there’s a surge in demand in virtually every facet of foreign exchange, barring spot FX. We’re talking about multi-currency physical delivery, options, NDFs, and forward & swaps. While spot FX still reigns in terms of volume, the real value proposition we offer lies in the accessibility to more intricate products and services. This trajectory is something I foresee continuing into 2024.
HW: What have been the primary catalysts for growth within StoneX?
ED: Interestingly, the volume drivers aren’t coming from FX-focused funds. It’s the international funds with inherent FX exposures that are now actively mitigating P&L risks to their base currency. This cautious approach wasn’t as prevalent even five years ago. This shift has catalysed a substantial uptick in trading volume. Furthermore, as traditional FX Prime Brokers recede from the market, StoneX Pro has emerged as a reliable alternative, accommodating smaller funds with a comprehensive suite of products and services that a traditional Prime offers. Our capability to physically deliver on an extensive range of currencies sets us apart.
HW: Technology has been a game-changer in many sectors. What role does it play in portfolio risk management, especially in the FX space?
ED: The evolution has been nothing short of remarkable. Partnering with the right tech provider can drastically streamline operations. Funds revisiting the FX trading arena are astounded by the advancements not just in trading, but also in post-trade processes and multi-currency transactions. The 2010s were a period of substantial investment in software and infrastructure in the FX world, transforming what was once a convoluted network of legal agreements and unreliable technology into a seamless, efficient system. This revolution is invaluable for risk management.
Eric Donovan, Global Head of Institutional FX at StoneX Group Inc – Eric has worked in the financial markets for over 20 years, starting as an options trader with CBOE Global Markets in 2002. In 2007 he founded an independent CME & CBOE member trading firm, where he directed all trading strategies, risk management and technology. Donovan joined StoneX in 2015, heading up FX & Interest Rates for North America before taking up his current role.