Forex might be all the rage in the trading industry these days, but most individual traders have begun to take note of the world’s largest market only fairly recently.

Peter Panholzer, head of trading and chief investment officer at DynexCorp and Panholzer Advisory Corporation (PAC), which together manage $53 million in the forex market, has been trading the currency market professionally since the late 1970s. He was currency before currency was cool.
Panholzer was something of a trailblazer, having started managing money exclusively in the currency
market at a time when common wisdom dictated doing so was a mistake because of the lack of diversification. Also, he was an early practitioner of systematic trading, which was a relatively novel concept in currencies at the time.

Panholzer, 61, who became a Canadian citizen in 1977, grew up in Vienna, where he earned a master’s degree in architecture from the Technical University of Vienna. This seemingly unrelated focus of study actually served his future career choice well. “I have a mathematical background,” he says. “In Vienna, the education for architecture is not just artistic, there’s a lot of engineering involved, and therefore a lot of math. I acquired my programming skills myself in the early 1970s.”

Panholzer worked as an architect for six years in Toronto, and he co-designed some award-winning
buildings in Canada. But when contemplating going solo, some of the inequities of his profession got
under his skin. His decision to try trading was the result of his belief in “objectivism, the philosophy of
Ayn Rand (author of the books Atlas Shrugged and The Fountainhead) that effort and talent should be
rewarded,” he says. “Unfortunately, in architecture, talent and effort are not, in most cases, rewarded. A bad architect who was a good businessman would be the richest architect you could find anywhere.” Panholzer continues. “Yes, there are some excellent architects — Frank Gehry and, in Canada, Arthur Ericson come to mind — who probably have been enjoying the benefits of Ayn Rand’s philosophy in the truest sense.

There you have two great talents who, like Frank Lloyd Wright, reaped the financial rewards of their talent. But there are great architects out there who are not rewarded accordingly. That bothered me.

“In trading that’s not the case. In the markets, you get rewarded — or slapped in the face — immediately.” Although 2004 has so far been a slap in the face for DynexCorp and most other currency funds, Panholzer has mostly been rewarded over the 25 years of his trading manager career. DynexCorp’s TETRA trading program was down roughly 15 percent this year through September, but Panholzer has had only three losing years since 1994 and DynexCorp was the No. 1 currency manager in 1998 and No. 3 overall from 1994- 1999, according to the Managed Account Report’s rankings of riskadjusted returns.

Panholzer began his market career in 1973 trading silver. He started trading currencies for his own account in 1977 and with such success that he began managing money in currencies exclusively in
October 1979. He’s been doing it ever since.

In 1979 he joined the Toronto branch of ContiCommodity Services (Canada) Ltd. as an account executive. He transferred to the Lugano, Switzerland branch office in 1981. Between 1979 and 1984, he ran the Magnum Currency Program (using currency futures contracts at the Chicago Mercantile
Exchange) at Conti, which produced an average annual return of 80 percent in its first three years.
After four more years at E.F. Hutton in the mid-1980s, he struck out on his own, founding PAC in
1988, to specialize purely in foreign exchange spot trading. Since 1992 he has lived in Monaco.

DynexCorp handles institutional business, which consists mostly of banks outside the U.S., while PAC,
which has an American office and is NFA and CFTC registered, handles individual and small corporate clients. The funds are traded in strict systematic fashion using Panholzer’s TETRA trading program.

“I didn’t start trading a strict system until 1979, which at the time was a fairly new approach,” he says. “And the attitude was trading currencies exclusively was a mistake because you weren’t diversified enough.” “We essentially have three traders looking after the signals,” he continues. “There is no discretion. They all use the algorithm that delivers the orders, which is very convenient because even a person who doesn’t know how to trade can internally monitor the program.”

Panholzer’s belief in systematic trading is based on two principles familiar to most mechanical traders: testability and objectivity. But he makes a distinction between “system trading” and “technical trading systems.” “System trading is different from technical trading,” he says. “In technical trading, you’re reading tea leaves — the indicators. Interpretation of technical indicators is often subjective and not programmable. But you can program a system.”

Panholzer sometimes sounds like a typical “quant” — talking about the trading in terms of distributions and other statistical concepts — but he also has a somewhat quirky sense of humor (which he occasionally uses to deflect inquiries into more specific aspects of his trading) and, like any good money manager, a talent for changing the subject. When asked what he thinks he does differently from other currency traders, he replied, “I do everything differently from other currency traders. The only thing that connects currency traders is that they never seem to sleep.”