Many hedge funds and other asset managers are electing treasury platforms for the financial and organizational benefits of having one central point of control. The demand for buy-side treasury platforms has grown concurrently with a broader recognition that financing can add operational alpha. When looking at security level financing attribution, treasury platforms can play an important role in P&L and performance management calculations. That said, tracking treasury activity at a broad level, or drilled down into details such as financing and margin cost, reconciliation, and reporting is very time consuming.
Rules-based engines, like Syncova, combine elements of dashboards, financing platforms, and collateral management platforms to deliver an all-around useful solution for treasury departments. Rules-based engines are an example of product convergence in the marketplace, as they incorporate elements of data collection, analytics, and rules-based decision making for the benefit of the client.
Facilitating margin and financing calculation requirements is the most popular functionality with Syncova. After data has been gathered, a hedge fund can perform its own calculations to validate that prime brokers and fund administrators have accurately processed their figures. The only way to find discrepancies is with a technology solution that can manage the calculation process where accruals can be fed back into the portfolio accounting system for a fully loaded P&L at the security level. This significantly improves reporting and transparency, and provides a more accurate understanding of the financing costs for each trade or strategy. This is an important distinguishing factor between rules-based platforms and dashboards: a dashboard can tell what the reported numbers are, but only a rules-based engine can take the next step and run an analysis for validation.
To alleviate the operational overhead required, a growing preference for many firms is to embrace outsourcing. Managed services and hosting allow buy-side firms to access the full functionality of treasury systems like Syncova without supporting a local installation. Vendors assume responsibility for software management and data integration, as well as hardware issues, including ensuring no system downtime. The client requires only a secure internet connection.
While all types of treasury platforms can offer workflow improvements over manual activity, only rules-based systems can deliver reporting, analytics and action alerts that enable managers to make better decisions based on trend analyses. Because rules-based calculator engines have an open architecture, the specific analytics are customized for each firm. This is a key functionality of automation for banks; rules-based treasury systems deliver the same level of functionalities at a hedge fund scale.
Once a fund has invested in treasury software with a rules-based engine, an interesting question is what else can or should be automated? Read our latest industry report in Securities Finance Monitor Magazine to learn how to stop the leakage of incremental profitability.