Over the past two decades, the Treasury function in investment firms has significantly evolved. What was once an internally focused, passive role has become an outward-facing, proactive position. Today, Treasurers engage directly with investors, due diligence firms, and service providers, in addition to collaborating with internal trading desks, operations, and management teams.

Keeping pace with market and industry changes

The financial crisis highlighted the critical importance of the Treasury function, elevating its status within organizations. Traditionally part of the finance team, Treasury has increasingly been granted more independence and greater strategic responsibilities. These are the key areas of responsibility:

Cash and collateral management
Financing strategies
Risk, including counterparty risk
Counterparty relationship management
Compliance with regulatory requirements, such as uncleared margin rules (UMR)

RELATED READING: Preparing for Uncleared Margin Rules

The morphing of Treasury has also been accompanied and influenced by other factors:

Availability of robust technology tools & system integrations
Hypercompetitive marketplace & rising investor expectations
The introduction of sophisticated and new investment products, such as UCITS or 40-Act funds

Tackling marketplace challenges with Treasury’s capabilities

Recent increases in the cost of capital and turbulence in the banking sector, including bank failures and the Archegos collapse, have led firms to reassess their oversight capabilities. Firms rely on the Treasury function to answer critical questions, such as:

Do we have the data needed for accurate analysis and to meet investor expectations, including assessing encumbered vs. unencumbered cash?
Are we equipped to manage a more rigorous compliance landscape, including new UMR requirements?
How can we leverage our strengths to negotiate better terms with trading and financing counterparties?
Are our risk management strategies robust enough to protect capital and navigate current market conditions?
Does our due diligence process have limitations? If so, how can they be addressed?
Are our stress testing capabilities sufficient to withstand today’s market forces?
How do we compare to the latest FSB recommendations on liquidity preparedness?

Innovative technology

Addressing these diverse challenges requires innovative technologies. Companies aiming to maintain top-performer status understand that assessing their technological capabilities is an ongoing process. What was sufficient yesterday may not meet today’s or tomorrow’s needs. Financial planning and risk management benefit from new forecasting tools, such as calculators and models, which assess the impact of changes in interest rates, currencies, financing terms, and other market forces.

However, these sophisticated tools are only as accurate as their data inputs. They depend on harmonized data delivered quickly and accurately. With synchronized data sources, purpose-built tools can provide Treasurers with insights to oversee exposure, make informed capital usage decisions, and advise on overall strategy. Access to consolidated data aligns Treasurers with their counterparties, enabling proactive trading and financing decisions that generate alpha for the fund.

With the right technology and Treasury functions, a firm can:

Model and codify margin and financing agreements. Investment firms can map terms and conditions to a single system, allowing them to:
Evaluate existing agreements for alignment with the current portfolio and consider renegotiations or alternative financing sources.
Actively monitor counterparty risk, reducing exposures before potential negative events, as seen with SVB.
Manage borrowing or lending of securities more effectively, optimizing available capital with a clear view of all relevant data, including interest rates and terms.
Verify margin calculations, enabling Treasury teams to dispute and issue margin calls, and simulate margin changes to ensure adequate liquidity is available to accommodate changes in portfolio or trading strategies.
Enhance risk management by simulating the cost of switching providers.
Allocate unencumbered cash reserves to market-neutral funding opportunities, such as Money Market Funds (MMFs), for greater yield. With a view of all major players in the MMF space, firms can flex in and out of opportunistic capital events.
Streamline reconciliation processes, eliminating resource-heavy back-office monitoring, and achieving operational accuracy, efficiency, and productivity.

Equipped for optimal performance

Implementing these strategies can be challenging. For example, translating and mapping margin agreements is complex due to varying terms and conditions among counterparties. Modernized technology can help investment firms effectively oversee their Treasury function. Providing a holistic view of all information supports effective decision-making, operational efficiency, and essential risk management. The toolkit enables:

A comprehensive view of counterparty agreements to clarify exposures and enable rapid response changes in market forces.
Replication of margin calculations, empowering firms to dispute counterparty figures and manage liquidity precisely.
Scenario modeling to assess liquidity impact under various conditions, including market changes, investment opportunities and provider transitions.
Access to all prime broker information in the portfolio, providing insight into rate opportunities and identifying the best prime broker candidates for both securities lending and borrowing.
Assurance of full compliance with all applicable regulations, including UMR.

Achieving bottom-line results

Treasury teams in have evolved far beyond their traditional passive roles. Equipped with the right technology and expertise, they can significantly boost both cost savings and alpha generation. Real-time visibility into counterparty exposure, the ability to challenge counterparty margin calculations and financing charges, simulate the impact of market changes on the firm’s liquidity, and access comparable counterparty data for borrowing and lending rates enable Treasury teams to make substantial, measurable contributions to the firm’s bottom line.