Money Management on the Margins

timemoney“Time is money- and neither should be wasted.”  – Benjamin Franklin

He’s got a point. So how can Buy Side firms make the best use of their time?  For starters, avoid leaving the increasingly important task of margin management to a single employee and an Excel spreadsheet given that compliance requirements are higher than ever and risk management is under the microscope.

At the HedgeOps New York event last month I had the privilege of participating in the “Money Management on the Margins” session. My co-panelists and I discussed the difficulties facing hedge fund managers today. We varied in both the types of firms we work at and job titles we hold, but the one thing we all had in common is we agreed this was an important topic and something the industry should recognize—hence the blog post after the event!

Here’s the rundown of what we discussed -

Issues facing Hedge Funds today:

  1. Increased collateral management roadblocks – Like all financial services firms, hedge funds are facing increasing collateral management and margining challenges such as managing the costs associated with margin, stock borrowing, and financing.
  2. Risk of human error – What’s typically been the task of one or a few employees can exhaust resources and compromise accuracy through countless hours of compiling data and reconciling charges using a tedious spreadsheet. The risk of human error has shifted the issue of margin management into sharp focus with recognition that more effective tools are needed to automate the process and  enable the more efficient use of margin, instead of managing the old fashioned way – that’s  if it was done at all!
  3. Collateral Optimization – Despite the industry buzz surrounding optimization, most buy side firms today are still posting cash. However, we panelists felt that over the next year firms will begin to look closer at their treasury stack and what securities they hold in their inventory versus what they can post to different counterparties.

In summary, the consensus shared is when transparency into margin and fee calculations is clouded; firms may not even realize how much incremental profitability could be slipping through their fingers. With operations teams already overloaded the answer is not more spreadsheets or bodies but finding technology to do the leg work, leaving you to impress your CFO and investors with the bottom line savings.

Nick is responsible for working with new clients for Advent’s Syncova and Geneva products. Prior to that he worked on client implementations.

Posted in Traditional and Alternative Asset Management
One comment on “Money Management on the Margins
  1. Drew says:

    Isn’t there an app for that? (an application for managing margin requirements)

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