Heeding customer feedback, Reval has added a partner to boost its ability to help companies extract key data from their enterprise resource planning (ERP) systems to measure FX exposures more accurately and better hedge them. The partnership, with risk and exposure management firm Atlas Risk Advisory pairs that firm’s software with its own treasury management system.
Reval, which provides treasury and risk management solutions, announced the partnership Oct. 27 at the start of the Association of Financial Professionals’ annual conference. Atlas joins a number of other firms comprising Reval’s STP Community, which gives its corporate customers efficient access to highly specialized offerings that interact with Reval’s software-as-a-service (SaaS) TRM system.
Reval began the STP community more than two years ago, recognizing corporates typically bear the brunt of integrating software systems. It canvassed clients to determine what they viewed as best-of-breed technology and then sought contractual obligations with those vendors, tying the systems together to optimize the user experience. Members of the community include FXall, an electronic FX trading platform owned by Thomson Reuters, and money market fund trading and risk management provider ICD.
Justin Brimfield, executive vice president of corporate development and strategy at Reval, said clients expressed a need to more accurately capture and measure their FX exposures, prompting Reval to consider developing the software internally.
“Many of them pointed to a need to better understand their exposures—you can’t accurately hedge what you can’t see,” Mr. Brimfield said. “When a company better understands the full scope of its FX exposures, it can hedge risk more effectively.
Several clients told Reval they were considering using the Atlas system, prompting the technology vendors to strike a dialogue and then align their efforts. Their partnership has been active since early this year and they are now working with a handful companies to ensure the integration aligns with users’ workflow, Brimfield said, adding the firms anticipate officially launching the integrated service by year-end.
The data required to more accurately measure FX exposures can be found in companies’ ERP systems from providers such as Oracle and SAP. However, said Scott Bilter, a partner at Atlas, those systems typically don’t create reports that automatically extract the relevant data from a company’s income-statement and balance sheet, the first part of the problem Atlas’s software resolves.
Its AtlasFX SaaS service also helps treasury executives forecast FX and hedging needs. Mr. Bilter noted that revenues and expenses drive profit and loss (P&L), so companies already focus on forecasting these items. AtlasFX leverages this activity and incorporates it into the hedge forecasting process, making life easier for the business units who do not typically forecast the balance sheet.
“Treasury officials are often tasked with forecasting line item by line item what the balance sheet is going to look like and there’s very little accountability for those numbers,” Mr. Bilter said.
Atlas’s solution provides the latest view of the balance sheet, and then it goes a step further by capturing the relevant P&L activity that has happened since then in order to forecast what the balance sheet exposures are likely to look like at the end of the month or some other future date.
“Out of the box, advanced balance sheet forecasting methodology utilizes forward-looking income statement inputs for accurate balance sheet exposure forecasts,” Reval explains, adding such a method is more reliable than taking daily snapshots of balance sheet statements as a proxy for the future, an approach companies’ sometimes use today.
Capturing that data also allows current-month cash flow hedges to be re-designated into balance sheet hedges for an integrated and comprehensive approach. In addition, the integrated software enables the identification of sources of errors or variances to explain balance sheet hedging results and allow for faster resolution of issues at month’s end, and it allows for more effective compliance with hedge accounting rules.