Cash management is one of the most important treasury management functions for a hedge fund. As a naturally complex process, it involves a routine and detailed examination of systems and core functions. Successful cash management requires time and effort as well as the active management of capital in order to sustain a fund’s ongoing activity, mobilization of cash and optimization of liquidity.
Are you bearing process weight from the past?
Treasury managers need to question themselves time and again. Without this ongoing self-analysis, many inconsistent processes have the potential to go unnoticed. Also, larger issues may persist such as decentralized systems and overly complex structures, which typically create several hurdles for global cash management success.
With multiple payment systems operating at any given time, treasury typically struggles, and settlements must wait for weekly reports rather than real-time information. Additionally, with an increasing number of funds under management, multiple counterparty relationships, and high amount of trading activity, invoicing and intra-company transfers, the processes concerning transaction settlements remain disparate and inefficient. Bringing about a change requires an overhaul of existing archaic processes and legacy systems, which would enable a fund to avoid suffering from the repercussions of suboptimal global cash management.
Do you lack clear visibility across your bank accounts?
A frequent source of headaches for treasurers is poor visibility across their bank accounts and available cash. Gaining a comprehensive overview of all accounts and their balances is a herculean task when dealing with an operating environment that involves multiple funds and accounts spread across multiple countries and custodians. The total time spent administering bank accounts and proxies takes most managers by surprise and keeps them away from performing value-adding treasury services.
There is a real need to centralize cash management to avoid inadequate cash visibility. Since payments are the cornerstone of liquidity and cash visibility for a firm, it is essential that payments are centralized. Payments have a strategic impact on the firm as they are becoming more instantaneous, and the need for centralization, standardization, harmonization and automation are the overarching themes when it comes to settlements and preparing for the future.
Key fundamentals that fund managers look for in systems and processes for cash management include:
Centralized Cash Management
Centralized wire settlements and cash management to increase control, optimize workflow processes and fully automate settlements of internal and external transactions.
Counterparty and Instruction Master
Managers need the ability to control their counterparty data, including accounts and instructions. Their need for data validation ranges from basic sanity, which include length and character validation, weeding out incorrect symbols to data matching using a central database of identifiers and accounts available with banks or SWIFT.
Moreover, an additional source validation, such as instruction callback and response facility or an internal 4-eye check, is often essential to ensure the accuracy of counterparty data.
Instructions and wires must be accurate to avoid losses due to wrongful debits or hassles in payment cancellations or recalls. The impact of an incorrect payment is felt both in terms of time and money, often resulting in severe repercussions.
It is important that both data-level validations and approval workflow must be mandated to avoid grave mistakes in settlements.
Extensible workflows with configurability are no longer a want, but a need. With rapidly evolving business processes, it is imperative for the system to adapt to changing requirements. Easy to configure, multi-role, multi-level, multi-fund, multi-counterparty and multi-custodian support for the workflows is now the new normal.
Visibility & Insights
Cash visibility aids better reporting and decision making, providing insight on the liquidity required to support ongoing activities. Nothing short of this will enable treasurers to leave behind the tedious collation of data from countless sources. Having account balance, cash flow and transaction data reports available directly in the system and in real time creates greater visibility and improves accuracy.
Transparency & Control
Audit on every action, whether user initiated or system-driven, is the key compliance requirement and is mandated across the industry. When it comes to payments and settlements, it is even more relevant and must be addressed proactively.
Staying Up to Date
With an ever-evolving regulatory and payment landscape, systems and processes need to have the ability to quickly adapt. Whether it is the need to screen payments for the OFAC or adopting better standards such as ISO20022, systems must consistently keep abreast with any change in market infrastructure and regulations.