It is vital for hedge fund managers to have enough cash on their books in order to maintain liquidity and manage daily operations like honoring margin calls and posting collateral for certain trades. The continuation of the pandemic has further underscored this importance, leading managers to seek out tools to help them keep a strict track of the cash that they have set aside to be redeployed once the current situation eases.
In the hedge fund ecosystem, prime brokers are considered an important element due to the key role they play in global custody, securities lending, financial leverage, and other value-added services. Among these services, the majority of revenue for prime brokers comes from spreads on financing, trading commissions and transaction settlement fees.
With its rapid spread in the beginning months of 2020, COVID-19 created havoc for businesses around the world. As major economies went into prolonged lockdowns, which restricted the movement of both goods and people, effects were almost immediately felt in global financial markets as investors pulled out their money from equities and commodities. In such a dire scenario, central banks, including the U.S. Federal Reserve, European Central Bank and Bank of Japan, were prompted to make off-cycle rate cuts and infuse liquidity to the tune of $9 trillion in an attempt to avert another financial meltdown like that of 2008. But even with this aid, major economies entered into a recession in the second quarter of 2020, and it now remains to be seen how the broader economy and consumer sentiment will recover.
Active treasury management is essential as fund managers navigate an era of shrinking prime broker balance sheets, multiple counterparties, and rising complexities around financing, cash and collateral management. As the current economic environment continues to evolve, the decentralized workforce has placed further strain on many funds’ ability to track, control and manage their treasury data and functions. For success now and in a post-pandemic world, managers have increased their focus on a digital transformation by leveraging digital-first providers to optimize their treasury workflows. Read More
