1 min readAbstract We introduce a capture-analyze-manage framework to counterparty risk management. The constant risk aversion principle and a credit risk scoring system may help organizations establish a target risk level and proactively manage their positions as conditions change. Introduction Although it’s been five years since the Lehman Brothers’ bankruptcy, many corporate treasurers continue to feel uneasy…
2 min readSummary Opinion Institutional Shareholder Perspective: We commend the Commission for tackling the tremendous task of analyzing mountains of data before putting forth the reform alternatives for public comment. We seek to weigh in on the subject from the perspective of an institutional asset manager. Penny Rounding for Shareholder Activities: We support the mandatory daily disclosure…
1 min readEach January our newsletter focuses on the likely challenges that cash investors will face in the coming year. Given how much has transpired in the treasurer’s world since the beginning of 2013, we thought that an update on the issues facing cash investors would be helpful. On June 5th the SEC voted unanimously to propose…
2 min readAbstract As we recap market developments in the first six months of 2013 and look to the future, we reflect on the following five observations from a recent liquidity conference: Low yield environment turning the corner; Corporate cash balances up, investors less worried; Supply still constrained, but more issuers entering the market; New money market…
2 min readAbstract Experience has taught us that even seemingly strong counterparties can fail without warning. Counterparty risk management has become more challenging in recent decades due to concentrated exposures, complex financial instruments and deteriorating bank credit. Corporations should manage risk proactively, have an integrated risk policy across business lines, diversify risk by setting exposure limits according…
1 min readIdentifying credit trends and translating these trends into risk management practices, whether in the management of a buy list or in the management of counterparty risk, is a key function within treasury departments. The negative trends in bank ratings we discussed more than a year ago, “Bank Ratings Headed for BBB, How the Megatrend May…
1 min readThis month I attended a client’s audit committee meeting to review cash investment strategies and an interesting question was raised; the treasurer asked if it was time to start evolving their risk tolerance away from a Government-only strategy. This was a provocative question and one that we hear frequently these days. Although this particular company…
2 min readAbstract In this paper, we discuss the concept and benefits of constant risk aversion in cash portfolio construction. The process may help treasurers understand, gauge and rationalize investment decisions to achieve consistent risk characteristics and to avoid the whiplash that can result from drastic pendulum swings between high-risk and no-risk. The Need for a Constant…
2 min readExecutive Summary We believe that mandatory disclosure of daily market value NAVs will be a significant step toward better risk transparency in money market funds. It is functionally equivalent to the FSOC/SEC’s floating NAV proposal without the unnecessary operational, accounting and tax complexities. When applied along with objective liquidity gates and/or reasonable NAV buffers, the…
2 min readAbstract We have identified the acceleration of money market fund reform, the scarcity of eligible investments and the threat of negative yield as three challenges facing corporate treasury professionals in 2013. Our recommendation remains the same as found in previous research – consider a separately managed account as a defensive measure against regulatory uncertainty, supply…