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Active management prioritises treasury
While outsourcing and scaling back head-
count can deliver immediate cost savings,
they do not necessarily solve longer-term
existential challenges. This rings true
for all industries, including active asset
management. Even though a number of
asset managers are pursuing aggressive
cost cutting initiatives, this does not mask
the fact that only 11% of US equity funds
outperformed the S&P index over the last
decade. Investors are voting with their
feet.
According to Morgan Stanley, this poor
performance is translating into massive
outflows with investors withdrawing
around $1 trillion from active equity
funds alone. A lot of this capital is being
reallocated into cheaper index funds
[exchange traded funds, smart beta].
Elsewhere investors are seeking better
returns through illiquidity premiums, by
upping their allocations into closed ended
products such as private equity, private
debt and real estate.
An urgent response is now required by
investment firms. To mitigate further
performance deterioration, some asset
managers are beginning to strengthen
their active treasury management oper-
ations. An operational activity renowned
for being paper intensive, treasury is not
the sexiest of business streams. But some
firms have recognised treasury’s alpha
generating potential, even shifting its
reporting lines to the front office. Effec-
tive cash management can not only incur
savings but may even stimulate returns at
asset managers.
Optimising efficiencies through treasury
management
“Asset managers can realise tangible
benefits by adopting treasury practices
already widely used by their corporate
counterparts. The priorities for treasurers
include; full cash visibility across mul-
tiple accounts, currencies and regions;
cross currency management; cash flow
forecasting and liquidity optimisation and
T R E A S U R Y
O P E R AT I O N S ]
balance management, to name but a few,”
explains Jon Lloyd, head of FIG sales for
Europe at JP Morgan’s Wholesale Pay-
ments Group.
“One concrete example of the cost
benefits comes from account rationalisa-
tion. First, bank accounts cost money to
service, so if an asset manager has a large
number of redundant or duplicate cash
accounts, this can represent a signif-
icant cost – and not to mention effort
– involved in reconciliation. Second,
proliferation of bank accounts across
multiple legal entities has implications for
monitoring fraud risk. Third, operating
a fragmented treasury model means that
a corporate or asset manager forgoes the
benefits of scale. This could happen as
subsidiaries negotiate transactional FX
spreads across multiple providers, losing
out on the scale benefits that could be
negotiated at the headquarters,’ continues
Lloyd.
Others agree. Eric Boughner, global
head of relationship management and
business development at BNY Mellon’s
Treasury Services business, says that
investment firms are generating efficien-
cies by consolidating disparate activities
across different desks, geographies and
funding sources to create a more joined-
up approach towards treasury. Simulta-
neously, he says a number of providers
including BNY Mellon are developing
their technology to help simplify and
improve the user experiences during
treasury management.
Making the most out of your collateral
Firms are also investing heavily into treas-
ury in order to meet their new regulatory
requirements. Ritesh Rathi, head of sales
for APAC and EMEA at Viteos, explains
that active treasury can help firms with
efficient collateral management. Follow-
ing the introduction of new collateral
regulations, derivatives users must obtain
high grade collateral to post as margin
on their OTC (over-the-counter) deriv-
atives trades at CCPs in addition to their
Spring 2020
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