Evolving Risk Management Practices

Best practices for corporate cash risk management have evolved rapidly over the years. The pace of this evolution accelerated significantly since the credit crisis, where both investment and counterparty risk management took center stage. Treasurers wanted to know specifically what their exposures were. They sought detailed credit assessments of the exposures and looked to understand how these exposures evolved day-to-day relative to their set policies and risk tolerances. Examples of best practices may be seen in separate account cash management. Detailed investment policies are constructed specifying risk tolerances for various asset classes, as well as for individual securities. Reporting systems are commonly employed to track daily exposures relative to investment policies and, in the case of our own Separate Account Management service offering, security-specific credit reports and holdings reports are available for daily review. These tools have evolved to provide treasurers with greater monitoring and control of cash managed in separate accounts.

Research and technology also have evolved to give similar risk management capabilities to Treasurers regarding the risks associated with money market fund positions. Our FundIQ® research platform allows Treasurers to quantify and monitor the risk of money market funds, providing a level of control similar to that offered by separate accounts. FundIQ® allows the user to observe and establish risk parameters in money market funds, which, we believe, is a revolutionary development in risk management capabilities available to corporate Treasurers. So in this month’s research, we look at how risk management practices that have been used for years in separate account management may be effectively applied to money market fund exposure.

Best Regards,

Ben Campbell
President & CEO