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bilateral counterparties. “A well organised treasury can help
firms manage their cash and optimise their collateral when
posting initial and variation margin,” highlights Rathi.
A paper by BNY Mellon argues that daily auditing of
collateral posted to derivatives counterparties – whether it
be CCPs or bilateral counterparties – and actively disputing
calls could free up excess or over-pledged collateral. While
conceding that daily margin calculations at prime brokers
are not necessarily the most transparent of exercises, the
BNY Mellon report says effective auditing of daily calcula-
tions and outputs from counterparties could help firms lay
the foundations to help them actively manage their margin
requirements, in what could be a “critical step towards opti-
misation and capital efficiency.”
Generating performance
Alpha can of course be procured through robust cash
management practices, but it is crucial for firms to have a
prudent approach to risk and liquidity. So how can money
be made? Take inefficiently allocated cash, for example, a lot
of which is held at current accounts yielding little or even
negative interest. Rather than leaving this cash sitting idle,
managers are increasingly shifting it into money market
funds and short-term bonds. Not only does this help achieve
risk diversification, but both of these asset classes also offer
ample liquidity.
“When engaging in active treasury management, manag-
ers are primarily aiming to enhance the yield of idle cash
“A well organised treasury can help firms manage their cash and optimise their
collateral when posting initial and variation margin.”
RITESH RATHI, HEAD OF SALES FOR APAC AND EMEA, VITEO
stemming from their regular investment activities. Achieving
this requires managers to invest cash in riskier products or
counterparties with different maturities – known as gapping
- in order to take advantage of the yield curve. Of course,
this needs to be carefully tailored to the asset manager’s pro-
file while implementation of detailed risk guidelines – such
as counterparty limits and gapping limits - is compulsory,”
states Rodolphe Dubost, global head of cash and liquidity at
BNP Paribas Securities Services.
While investing into money market funds and short-term
bonds can yield additional basis points (bps) without incur-
ring huge risks , some experts believe there are other ways in
which treasury can help drive up revenues at under-fire as-
set managers. A lot of asset managers are sitting on unspent
cash – an issue which is especially ubiquitous in the world
of private equity where dry powder is at record levels – and
there is growing pressure on firms to deploy their capital be-
yond just short-term deposits and interest bearing accounts.
With active treasury, some managers may want to look at
loaning out fully paid securities for a fee, adds Rathi. “This
is not something, which a lot of managers are doing, mainly
because it requires them to build very sophisticated margin
management and optimisation systems,” he explains. While
investors may welcome the notional bps that might be ac-
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Global Custodian
Spring 2020