New Challenges in Counterparty Risk Management
The rapidly changing global risk management landscape has created new challenges for corporate cash managers. Money market fund reforms, rising interest rates, regulatory uncertainty and geopolitical upheavals have elevated potential risks, inviting ever-closer board scrutiny of Treasury operations. Our white paper this month, Separately Managed Accounts in Counterparty Risk Management, explores the latest challenges in the world of risk management and provides advice on how to navigate it.
Not long ago, managing counterparty risk in cash portfolios was a relatively straightforward affair. Institutional cash managers could diversify risk with multiple prime money market fund investments while keeping an eye on counterparty credits. But now, in our increasingly complex and globalized financial system, properly tracing issuer concentration to the ultimate obligors is far more difficult. At the same time, even more diversification among asset types, as well as country and industry groups, may be necessary to reduce vulnerability to highly concentrated sectors.
Reliance on standard credit ratings may no longer be adequate. Independent, comprehensive, ongoing analysis that captures fundamental and market factors can supplement credit ratings and improve overall outcomes. That’s why we have always said that separately managed accounts (SMAs) are an excellent foundation for managing counterparty risk across the enterprise. Institutional cash investors and their advisors who are doing the work required to strike the right balance of liquidity, risk, and return in an SMA are already using many of the tools required.
If your cash portfolio has grown in complexity and is subject to more board-level oversight than in the past, it may be time to turn to our separate accounts playbook to help manage your risk. This month’s white paper can help you on your way.