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Treasury Operations: An Untapped Source for Incremental Revenue

By Ritesh Rathi, EVP, Viteos Fund Services.

Contact me at reply@viteos.com regarding your treasury needs.

Achievable by ample amounts of effort and analysis, there is a higher function, one that turns the hedge fund treasury into a source of incremental revenue and savings derived from bolstering data usability. As such, the treasury function is no longer just a back-office necessity. When viewed daily, revenue and savings seem incremental, however in aggregate the sums are large enough to contribute materially to overall returns. We see this as an area for improvement and expansion beyond the essential treasury activities associated with margin calls and wire processing. Implementing decision support information systems expand the treasury’s complex optimization choices and erect checks and balances, both of which are just beginning to get the attention they deserve.

Streamlined Data Sets for Greater Revenue and Time Optimization

Volumes of unstructured and diverse data sets in non-standard formats can thwart attempts to optimize cash, financing, collateral, and borrowing. Across the board, manual processes can drain your productivity–and stand in the way of improving both the usability of your data and your sheer profitability. Inadequate treasury data and systems can lead to both excessive costs and insufficient compensation across a range of operations.

  • Margin Overpayment - Traditionally, margin call authentication and validation calculations require multiple Excel imports. Because of the time-consuming, laborious process, margin calls from prime brokers and OTC counterparties are taken at face value. The resulting over-collateralization deprives a manager of investable capital.
  • Stock Borrow Overcharge - Low data usability in stock borrow arrangements inhibits a clear view of competitive lending rates and corroboration of borrow fees. The treasury may be overpaying for stock borrows, and also missing out on lending fees on hard-to-borrow securities.
  • Costly Financing/Missed Revenue - Disordered cash management practices, without wide-ranging oversight on cash balances and projections across prime brokerage accounts, leads to higher financing charges or missed revenue from higher yielding money markets.
  • Time-Consuming Wires - Setup and approval of wires across multiple custodian/prime broker portals, requiring authentication by multiple authorizations – rather than single sign-on capability – turns a rudimentary operational process into a drain on productivity.

This Table Summarizes the Leading Drains on Productivity and Typical Tolls they Extract

Treasury Technology Yields Dividends Across Processes

Developing comprehensive treasury functionality is contingent on automation that simplifies the authorization, receipt, consolidation and analysis of data flowing from multiple sources. Data simplification and analysis is just one part of the improved treasury equation. The other part is how that information is used. Improved validation and optimization

Improved Validation and Optimization

With greater data transparency and validation, fee and financing charges no longer need to be accepted at face value – they can be disputed with confidence. Automation provides treasury with better tracking and validation, and a toolbox of metrics on excess borrow returns, rate disputes, finance charges, and margin calls. The net result is improved efficiencies in cash management and the optimization of financing charges and stock borrow/ lending fees.

Improved Dispute Management

Equipped with real-time facts, treasury staff is empowered to pursue disputes and build a case with prime brokers and counterparties.

  • Bi-Lateral OTC Deals - Automated solutions sift through internal systems and counter-party reports, calculate margin calls precisely, and identify issues with the counter-party call. When performed at the initial margin and position level valuation, treasury can confidently raise a dispute. If securities are posted as collateral, automated ladder technology can optimize security selection or substitution.
  • PB Margin Calls - Technology makes it possible to easily validate and summarize total equity and house requirement data. Automation eliminates the need to shuffle through stacks of reports and look for swings in haircuts or determine whether add-on margin has been applied towards concentration, liquidity, etc. And when disputes are flagged correctly, cash can be redeployed to generate returns.

Centralization: Clearer, Smoother, Stronger

Centralized systems are the linchpin to an automated treasury, with benefits accruing across routine processes.

  • Stock Loans and Borrows - By centralizing stock loan and borrowing processes – removing it from the domain of individual portfolio managers – data is aggregated. This gives hedge funds greater transparency into the mechanics underpinning transactions. The advantages are two-fold: centralization prevents overpaying on borrows and enables hedge funds to take advantage of lending opportunities.

Improved Dispute Management

Equipped with real-time facts, treasury staff is empowered to pursue disputes and build a case with prime brokers and counter-parties.

  • Wires - A centralized software management system removes the friction associated with wires. By storing settlement instructions, and integrating with collateral management and settlement systems.
  • Broker Wallet Analysis - A single dashboard makes conducting broker wallet analyses far easier. By having clear-cut information about individual prime brokerage relationships, hedge funds are in a stronger position to negotiate.

Revenue Sources and Results from Improvements

Today, every dollar in a hedge fund needs to be deployed into high-yielding assets—and every corner examined for revenue potential. Hedge fund treasury, once mainly an operations center, can be an incremental revenue generator. By partnering with an automated technology partner that specializes in financial service data management and analysis, hedge fund treasury units can better position themselves to optimize cash and borrowing

Viteos Fund Services

We offer customized, straight-through processing and integrated post-trade operations across virtually every asset class, currency, border, and structure. Our deep operational and accounting expertise is backed by state-of-the-art technology, enabling a high degree of control via automation in a 24/7 global delivery model. The result is a new level of scalability and flexibility to help you grow-whether you are focused on gathering assets, developing new strategies, or entering new markets. Visitwww.viteos.com or contact us for more information.

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