MTL - The Son of Finance of the Great Age-Chapter 9 Currency Management Outsourcing

  Chapter 9 Currency Management Outsourcing

  Why was Ray Delio invited to China?

   In 1975, the Harvard Business School top student ended his career at Hillson Heston and established Bridgewater Associates (Bridgewater Associates) in his apartment. This is a fund whose main strategy is macro hedging. Ray Dalio persuaded some old clients to hire him as a consultant and started his new career.

The so-called hedge funds (HedgeFund), also known as hedge funds or arbitrage funds, refer to those funds that use hedging transactions to obtain benefits. They avoid or reduce risks through hedging. In the capital market, such funds often use staggeringly high leverage and derivatives with increasingly complex structures to invest, and the risks involved are far greater than those of funds using traditional trading models.

  As one of the branches, macro hedge strategy funds refer to funds that obtain income by making leveraged bets on price fluctuations in stocks, currencies, interest rates, and commodity markets around the world.

   Although Bridgewater Associates was established less than ten years ago, it is now well-known in the international financial market. Its precise analysis of the market and economic situation, and then the creation of numerous investment strategies, has attracted the attention of peers.

  Hedge funds in the 1980s have not yet reached their golden age, but a group of hedge funds led by Quantum Fund still achieved shocking performance in the market, making investors favor hedge funds.

In this era, those big names who are famous in later generations are still working hard. James Simons of Renaissance Technologies just founded Renaissance Technologies Corporation for two years, and he led his talented colleagues to While painstakingly creating the model, the Medallion Fund has not yet been established, and Jeff Bezos is still earning his degree at Princeton University.

  In the 1970s, the Bretton Woods system established after World War II disintegrated, the world currency entered the Jamaica system, and the foreign exchange market began to implement a floating exchange rate system. With the fluctuation of currency exchange rates and the fluctuation of gold prices, international financial crises occurred frequently.

  The Bretton Woods system refers to the international monetary system after World War II that uses the U.S. dollar as the international trade settlement unit. The core content is that the U.S. dollar is linked to gold, other countries’ currencies are linked to the U.S. dollar, and a fixed exchange rate system is implemented between them. At that time, the United States was the only major country that did not have a war at home during World War II. At that time, its gold reserves accounted for 70% of the entire Western world, so the US dollar became the only currency that could be linked to gold, so it was also called "US dollar". ".

  From the 1960s to the 1970s, the United States intervened in the Vietnam War, and the fiscal deficit was getting bigger and bigger. The international balance of payments continued to be in deficit, and a large amount of capital fled, and the U.S. dollar was exchanged for gold. After discussing with the Allies, the United States announced that the value of the U.S. dollar would be decoupled from gold, and that the U.S. dollar could no longer be exchanged for gold.

   Later, under the leadership of the IMF, various member countries held a meeting in Kingston, the capital of Jamaica, to reach a new international monetary system, the "Jamaica System."

  The main content of the "Jamaica system" is to recognize the floating exchange rate system, so that the fixed exchange rate system and the floating exchange rate system can coexist. Member countries can choose their own exchange rate systems. The IMF supervises the exchange rate policies of various countries. At the same time, the agreement stipulates that gold will withdraw from the international monetary system.

   In this way, the U.S. dollar is no longer the only reserve currency of various countries. With the recovery and rise of the economies of West Germany and RB, the Mark and the Japanese Yen have gradually become stronger and become important international reserve currencies.

  In the 1970s, China and Japan established diplomatic relations, and the relationship between the two countries tended to be normalized. In the 1980s, the relationship between the two countries reached a climax, with frequent exchanges in various aspects such as politics, economy, and culture. In 1979, RB Prime Minister Masahiro Ohira visited China and promised to provide China with the first batch of government loans, and then provided the second batch of government loans last year (1983), making a huge contribution to the Chinese economy that was in urgent need of funds after the reform and opening up.

  In this case, if Huaxia's enterprises want to obtain funds, the first target is naturally RB's consortium. Huaxia Trust issued a huge amount of bonds in RB's financial market two years ago to raise funds for the construction of large chemical enterprises.

  Different from intergovernmental interest-free loans and repayment agreements, Huaxia Trust is an enterprise, and financing activities between enterprises must pay interest, and at the same time bear the risk of exchange rate fluctuations.

The RB economy became the world's second largest economy in the late 1960s, and reached its peak in the 1980s. As the RB economy shifted from "investment-oriented" to "export-oriented", even after the oil crisis, the entire Western world was in a state of chaos. When the world was suffering, RB's economy grew at an average rate of more than 10% in the last few years of the 1970s. The products produced by RB, ranging from palm-sized Walkmans to large luxury cars, have fully captured the global market.

  In this case, the value of the yen is particularly noticeable. As we all know, the lower the exchange rate of a country's currency, the more favorable it is to the country's exports. As an "export-oriented" economy, the exchange rate of the yen is very low, which greatly stimulates the economic development of RB. However, with the rapid development of the RB economy, the pressure on the appreciation of the yen is also increasing.

The funds raised by Huaxia Trust are in Japanese Yen with a period of 12 years. If the Yen appreciates during this period, it will undoubtedly be disastrous for Huaxia Trust. The currency to be repaid in the future is RMB, which may be an astronomical sum .

   Therefore, the senior management of Huaxia Trust specially invited Ray Delio, the founder of Bridgewater Associates, a leader in currency risk management in the international financial market.

  Currency management outsourcing is the outsourcing of currency risk management work to professional institutions. It is divided into passive and active. The senior management of Huaxia Trust found Ray Delio, hoping that he could do risk management for the yen that was about to be raised in the RB market.

And Ray Delio was also very surprised by this invitation. At that time, China and the United States established diplomatic relations only five years ago, and the actual leaders of China visited the United States shortly after the establishment of diplomatic relations, opening a new chapter in the diplomatic relations between the two countries. American companies and For the first time, capital set its sights on China Mainland, which is an extremely huge market.

  Ray Delio got off the plane, looked around at the scenery, sighed slightly, and followed the crowd out.

This red country is still extremely mysterious in the eyes of most Americans. Although he has a small reputation in the capital market, he still feels a little uneasy in his heart. He didn't really feel relieved until he saw a few middle-aged people holding up the pick-up signs. .

   Not wanting the other party to be more nervous than him, the rich middle-aged man standing at the front hurriedly wiped his hands on the suit a few times, then stretched out his hand, and stammered:

   "Nes...Nesto...Mite...Oil..."

  Although he stuttered, Delio still understood. A comprehension smile appeared on his face. He held the man's hand that was still in the air, shook it politely, and comforted him softly:

   "Nice tomeetyoutoo, Takeiteasy." (Nice to meet you too, relax...)

  But what Delio didn't expect was that when he just said "relax", the man became more nervous, and more sweat poured out of his wet palms.

"Mr. Dalio, I'm your translator. Myname is Zhongyi, you can call me Keneeth!" (Mr. Dalio, I'm your translator. My name is Zhongyi, you can call me Kenneth.) At this moment, holding up the pick-up sign Xiao Zhong said. (The following will be English dialogue and Chinese culture)

   "Oh, your English is very good, where did you learn it?" Delio asked repeatedly with a surprised expression on his face.

   "Yanjing." Zhong Yi smiled and replied shyly.

   "Oh, really? I thought I was in Manhattan now!" Dalio said exaggeratedly, with a look of surprise on his face.

   "Mr. Delio, you are so humorous. Thank you for coming, this way please." Zhong Yi took Delio's suitcase and made a welcome gesture with the other arm.

   "Aren't you going to introduce these gentlemen to me? Mr. Zhong!" Delio didn't move, but shrugged his shoulders, facing the other dumbfounded people with a faint smile on his face.

  Business etiquette has long been familiar to a capital master like him who has been around for a long time. On this occasion, even though he met several people for the first time, he would not lose his manners.

  Zhong Yi blushed, and quickly introduced several cadres of Huaxia Trust in English. Delio shook hands with them one by one with a smile on his face.

   "Sure enough, he is a foreign financial tycoon, and he even noticed this little detail!" Several people thought in unison.

  Although they couldn't understand the dialogue between the two, they could infer one or two from their body movements.

  After all the polite greetings were over, Delio followed Zhong Yi, joking as he walked:

   "It is of great significance to me and Bridgewater United to be favored by a state-owned company in China!"

   "Qiaoshui?" Zhong Yi, who had been leading the way, suddenly called out.

   Except for forgetting to introduce a few companions, he has always behaved decently. Even the obese Director Lu praised Zhong Yi's behavior, and didn't mind the conversation between him and Delio at all.

  Of course, this is also because he doesn't speak English, and he is unable to strike up a few more words.

   Before they could respond, Zhong Yi asked loudly:

   "Bridgewater? A hedge fund?"

   "Hey, do you also know about hedge funds? That's great, it seems that we have a common language!" Delio showed a look of surprise and sincerity this time.

  Before he came to the mainland, he really did a lot of work, knowing that this country has experienced decades of turmoil, and the entire society is basically in a state of stagnation, seriously out of touch with the entire Western world. It wasn't until a few years ago that the country's leadership decided to open its doors and reengage with the world.

   It really surprised him that in such a country, anyone knew about hedge funds. You must know that on Wall Street, hedge fund investors don't know much. In fact, until the late 1980s, hedge funds were not noticed by investors because of their outstanding performance.

  Hedge funds are generally private in nature and are not open to public investors. In order to avoid the supervision of the Securities and Exchange Commission of various countries, they are generally registered as offshore companies, such as tax havens such as the Virgin Islands and the Cayman Islands.

   Now this young man actually said "hedge funds", and he seems to have heard of his "Bridgewater United", which surprised and delighted him.

  (end of this chapter)