Pritzker Family Turns to Jen to Hedge Swings in Currenciesby
Jen's firm to advise currency fund for Pritzker family office
Jen is known for predicting the 1997 Asian financial crisis
Investment managers for U.S. Secretary of Commerce and billionaire Penny Pritzker and other members of her family are seeking to shield their fortune from foreign currency swings.
Executives at Penny Pritzker’s family office have set up a currency trading partnership with Stephen L. Jen, a former International Monetary Fund economist who later predicted the 1997 Asian financial crisis. The partnership has raised $72 million to date, according to a Feb. 24 filing with the U.S. Securities and Exchange Commission.
Turbulence in currency markets has risen to a four-year high, roiling markets for stocks and bonds, as witnessed in August, when China’s devaluation of the yuan fueled an 11 percent plunge in the benchmark Standard & Poor’s 500 Index in the course of six trading days. The volatility has been particularly severe in emerging markets, where the Pritzkers have invested millions of dollars through outside hedge and private equity funds.
“Like everybody else, we are seeking to protect some of our investments from currency movements,” said Damien Coady, who helps oversee Pritzker family investments in outside funds and partnerships. “Any responsible investment manager in my seat is thinking about currency exposure at this point in time,” Coady said in a telephone interview.
Jen, who runs a London-based macro hedge fund that makes bets on foreign exchange, didn’t return telephone calls seeking comment on the Pritzker SLJ Currency Fund.
A spokeswoman for the Commerce Department declined to make Pritzker available for comment. Upon becoming Commerce Secretary, Pritzker sold many of her investments and ceased all involvement in her previous business affairs.
The J.P. Morgan Global FX Volatility Index, a barometer for global currency price swings, last month spiked to its highest level since December 2011. The currency volatility of the past year has stemmed in part from diverging monetary policies among central banks, as the U.S. Federal Reserve has embarked on raising interest rates while Japan and the European Union have sought to push theirs down, said Jason Pride, director of investment strategy at Glenmede, a Philadelphia-based wealth management firm.
Jen, the Pritzkers’ new partner, provides institutional and corporate clients with currency overlay strategies that are designed to both boost returns and offset losses on other assets, including stocks and bonds, according to the website for his SLJ Macro Partners. He has been warning for years that emerging markets are due for a fall.
“Even if you are just a U.S. equity investor, you are looking at these big macro non-U.S. things that have happened,” such as China’s devaluation of the yuan and Japan’s adoption of negative interest rates, said Robert McTamaney, who formerly helped run the global foreign exchange and Asian securities trading units at Goldman Sachs Group Inc. “You think, ‘How can I protect myself?’ and find a guy like Stephen Jen.”
The Pritzker family created one of the nation’s largest business empires, including Hyatt Hotels Corp. and Marmon Holdings, a group of 125 manufacturing and service companies, that was subsequently broken up. Penny formed a family office called PSP Capital Partners to invest her share of the family fortune, in part by allocating capital to various hedge and private equity funds.
Coady and John McGuire, who together handle PSP Capital’s fund investing operations, are listed in the SEC filing as officers of the currency trading partnership. They also help manage the investments of trusts formed on behalf of Pritzker family members as well as six Pritzker family foundations with combined assets of roughly $1 billion.
These charitable foundations, including ones started by Penny as well as her cousins Thomas and Gigi, have invested roughly $600 million in hedge and private equity funds, according to the latest tax documents available from the non-profits. This includes about $200 million of funds that invest in Japan and emerging markets, such as the Cephei QFII China Absolute Return Fund, Lei Zhang’s Gaoling Fund and Chase Coleman’s Tiger Global Management, a New York-based hedge fund that held almost $3 billion worth of overseas-traded Chinese stocks at the end of last year.
At least three of the foundations reported that they also began making bets on the yuan during 2014, either through investments listed as “China FX overlays” in their tax documents or through options on an HSBC yuan index.
Last year would have been a good time to hedge currency risks, said Celia Dallas, chief investment strategist for Cambridge Associates, which advises institutions on investing in hedge and equity funds. The MSCI Emerging Markets Index declined 14.6 percent in dollar terms last year, including reinvested dividends, but only fell 7.9 percent on a dollar-hedged basis, according to Dallas.
“Most investors don’t hedge out emerging market currency risk because of the high carry costs,” Dallas said in a telephone interview. “Clearly on a hindsight basis,” Dallas added, “you would have benefited” from such hedging in 2015.