Buy-Side Orgs Can’t Be Passive In Treasury Strategy, Warns Hazeltree


Treasury management has taken on an active role in the enterprise, said treasury management firm Hazeltree in a new whitepaper. The report, “Active Treasury Management — A Powerful Competitive Advantage,” released last week, examines how an active treasury management strategy is now critical for buy-side organizations, like hedge fund managers.

“The value of treasury management has an inverse relationship with the availability and cost of liquidity,” explained Hazeltree CEO Sameer Shalaby in a statement announcing the paper. “As the market and regulatory environments have evolved in recent years, active treasury management has emerged as a best practice that is integral to operational efficiency, regulatory compliance and, for those who manage it effectively, an additional source of alpha.”

Nearly half of hedge fund managers have been told by their prime brokers to implement active and optimal cash and treasury management processes, according to a 2016 E&Y survey, cited by Hazeltree. Since the 2008 financial crisis, hedge fund managers have been hit with a slew of new challenges: increased prime brokerage fees, heightened regulatory demand, lower investor fees and the like. Active treasury management, Hazeltree noted, can help to manage the new array of demands.

But introducing an active treasury management program is not straightforward.

Fund managers must have a clear understanding of what treasury management entails, the company said, and they need the talent to implement this initiative. That means working with top treasurers, as well as the technology that can support greater cost transparency.

And that’s just the beginning. Fund managers must implement annual relationship review meetings with each counterparty, the paper explained, and must deploy regular monitoring of counterparty creditworthiness. It’s an ongoing process but one that can reap major benefits when these efforts combine into a single treasury management directive.

A New Ballgame

Before the 2008 financial crisis, Hazeltree noted, little benefit was seen to implementing a “tight” cash management effort thanks to high returns and fewer counterparties. Today, however, Basel III regulations have introduced more stringent, complex cash management demands. Banks are less able to hold onto excess cash a fund may have, while prime brokerage divisions must similarly adhere to strict regulations should they take a fund’s cash.

“It’s a little crazy, the world we live in, where banks don’t want cash,” Shalaby said in a recent interview with PYMNTS explaining the challenges hedge fund managers face today. “With the new rules, some of these money market funds are going to have gates, and they’re going to limit the ability to get money out whenever you want.”

Fund managers today must keep cash management in full view should they wish to maintain prime broker relationships, reduce funding costs and handle the fees associated with keeping excess cash at their prime broker. But active treasury management solutions can also introduce other benefits of cash visibility, including the ability to more adequately detect cyberthreats or fraud and to assess the health of counterparties. Data analytics capabilities for treasury management solutions can also offer cash forecasting solutions that are more sophisticated than before.

The movement of cash is yet another modern hurdle fund managers face; these professionals tend to wire money, but strict requirements regarding access, tokenization, authorization and wiring limits all pose problems.

“Consider a fund manager with 400 accounts, across 20 banks globally,” the paper explained. “Assuming they have two approval levels, each approver would have to manage 20 passwords and tokens across the various banks. With password expirations and lost tokens, this can quickly become a major operational headache.”

An active approach to treasury and cash management, Hazeltree concluded, enables fund managers to access the technologies that provide streamlined and more efficient management support. Buy-side organizations will continue to face challenges, too. Brexit, the U.S. presidential election and other forces are likely to lead to at least some deregulation, including that of Basel III.

With 2017 in view, Hazeltree predicted that fund managers will continue to focus on “building treasury management functions,” and that includes accessing the right kind of technology to manage the newest challenges of the day. But with that in mind, the firm noted, managers will likely struggle to access the talent they need.