The story behind the collapse of the world’s once biggest foreign exchange hedge fund FX Concepts is a sad one. Certainly for its fund holders anyway! For a company that was created several years ago and that at its peak was managing some $14 billion, to end up in bankruptcy in 2013 was a somewhat ignominious end. After years developing an algorithmic trading system that seemed to be working, it was no doubt soul destroying for John Taylor to file for chapter 11, but with just a few bucks left, millions in liabilities, and a worthless computer system, there was no other option than to put an end on the company.
FX Concepts was a major hedge fund that, in 2007, was among the largest in the world. The hedge fund was dedicated to purely Forex trading through the use of complex trading systems and managed to attract a roster of important institutional clients. But, with the advent of “central planning” with the Federal Reserve keeping artificially low interest rates and “helicopter Ben” distributing fresh dollars, the success of computer trading systems in the FX market has been laid low.
John Taylor and his FX Concepts firm was the first big victim as he failed to turn his systematic trading into a more discretionary one to overcome the difficulties created by central banks. It was clear the system wasn’t working as the overall performance between 2002 and 2013 was a shy 3.75% with its flagship funds actually yielding loss after loss during the last few years. But John let the system rule until the last minute and which resulted in the company owing a $34 million debt to Asset Management Finance, a private investment company owned by Credit Suisse, and for which John gave his personal guarantee of $5 million.
At the end of 2013, Ruby Commodities made a $7.5 million offer for the remaining assets of FX Concepts, oddly including the failed trading systems, the brand name, and all historical data sitting on the company’s servers. Unsurprisingly they didn’t bid for the newsletter published by John Taylor.
Now, a mere few months later it seems John is back for a second round. He has rented an office, installed a Bloomberg terminal and resurrected his former newsletter. He acknowledges that the shocking end to FX Concepts means that many will treat his new newsletter as something of a joke but we guess that $5m loan needs paying somehow. He’s gonna need to sell a lot of $29.95 newsletters to make a dent in it though..!
In John’s words “we expect in the future to be bigger and better. I’m very glad to be back to doing research and writing. I suspect in the future we’ll be managing money again.” Somebody let us know so we can trade against it!
We expect that he will not base his trading ideas on FX Concepts system as it is about as useful as having money on a desert island. At the age of 70, it is pretty impressive how fast John moved to create another business. Let’s wait for the real trading to start in the near future. For now we have his trading ideas coming out of a virtual portfolio & that he probably manages through Yahoo Finance!
Filipe R Costa