Best Practices for Treasury and Cash Management
As Treasury and Cash Management has continued its evolution from a gaggle of unstructured manual tasks run on spreadsheets to a proactive and strategically critical function within hedge funds and private equity firms, a growing list of examples continues to demonstrate Treasury and Cash Management automation can add value across operations. A recent case study by IVP illustrated that implementing a Treasury Management solution reduced margin calls response times by 80% and resulted in a 70% reduction in time saved on back end processes.
While each firm’s precise needs vary, certain elements are frequently common among asset managers. Here we explore five vital practices that can help firms to take active treasury management to a new level:
Single Source of Truth for House/Counterparty Numbers
Even though fund managers might work in isolation, the treasury operations team should have a consolidated view of all accounts. This is extremely crucial in determining the fund’s cash levels and liquidity. In this regard, automated consumption and normalization of broker statements can save time and reduce the risk of missing important transactions.
Have Powerful Analytics in Place
Insights from analysis of exposure as well as cash forecasting can help strengthen liquidity and generate alpha resulting in a better competitive position.
Similarly, other benefits like comparing fees charged by counterparties across funds, having full visibility of trading requirements (margin & collateral), and a clear idea of cash excess/deficit across multiple fund accounts can be enabled using analytics in Treasury and Cash Management.
Sweep Excess Cash
Most counterparties actually charge the fund when accounts are in excess (in the fund’s favor). To avoid these charges, you can sweep the excess funds at the end of the day to liquid MMFs and generate between 10 and 20 bps yield over Fed funds. Additionally, usage of repos can yield even higher returns by up to 70 bps over Fed Funds. Therefore, investing your excess cash is an integral part of active treasury management.
Streamline Wire and Settlements Processes
Funds cannot afford to spend too much time manually inputting information to generate wires. There should be a system that takes care of reference data, SSI information and Legal Entities as well as automates wire generation for scheduled payments like daily margin calls. This will free up time which can be better utilized for reviewing the outgoing wires.
Automate Margin Call/Transfer Workflow
Within UMR regulations, funds need to have a margin workflow in place where a call has to be answered within a specified time frame. This means all the underlying activities including broker statement normalization, margin estimation, email agreements/disputes, and collateral transfers must take place in that time frame. Automating these processes can help in achieving compliance with UMR regulations while saving time for active treasury management.
With increasing regulations and competition, it is imperative for fund managers and treasury teams to leverage tools and practices that can help to simplify their workflows and generate alpha. Using a strong active treasury management tool can help you achieve that.