By Hilary Kabak
Spreadsheets are effective, but sometimes they need more dimensions. Enter AtlasFX.
A perennial problem with treasury activities is that they often become wholly reliant on spreadsheets. FX management is no exception.
The problem with spreadsheets for foreign exchange is that they are great for the small amounts of data they were designed to manage, but, while flexible enough to accommodate more, they do not offer enough dimensions of analysis to do everything an FX manager needs to do. They work best plotting one variable against another. Plus, spreadsheets are prone to human error and frowned upon from an audit and control perspective.
AtlasFX is a risk management solution whose tagline is “Defending Multinationals from FX Volatility.” It was designed as an online analytical processing (OLAP) tool by practitioners at Hewlett-Packard to solve the “dimensionality problem” of spreadsheets, focusing on the need for more variables, intersecting data points, real-time valuations, and visibility into exposures and operations in order to better control for volatility.
THE H-P CONNECTION
Three of the founders of AtlasFX, Jonathan Tunney, Gavin O’Donoghue and Scott Bilter, used to managed foreign exchange at H-P from 1995 to 2010.
The main component of AtlasFX was born from a solution they developed in response to a wrong-way trade entry of over €1bn, which created a $28mn gain in 2003. Prior to 2003, H-P employed a process of collecting balance sheet forecasts from ten treasury analysts located in three treasury centers around the world.
Those ten analysts collected from each country/entity controllership a line-by-line forecast of their non-functional net monetary assets. Excel files were used to collect this information from over 100 entities across 27 currencies into a central repository and consolidated into one giant Excel spreadsheet that was referred to as “The Beast.” The trade-entryerror prompted the FX team to do something about this process and the beast of a spreadsheet.
The reengineered result created system functionality that replaced the manual extraction of data and data entry into spreadsheets, including direct links to ERP, planning and reporting systems, and treasury workstations. In the process, the H-P FX team simplified the spreadsheet models to reduce analytical issues, improve access to historical company information and integrated the balance sheet and cash flow hedge programs to refine their forecasting processes (see table below). And based on a project undertaken in 2004 with John Bird at Bank of America’s FX risk management advisory group to establish an active hedging program, H-P also incorporated some advanced analytics to guide hedging decisions and analyze both balance sheet and cash flow exposures and hedging performance.
HOW THE ATLAS SYSTEM WORKS
In some ways, AtlasFX provides a similar solution set to FiREapps. The main difference is that AtlasFX was born more directly out of an H-P in-house solution, whereas FiREapps draws on the technology of its founders and work with clients such as Google that helped iron out some of the practical applications for corporate FX managers.
AtlasFX first solves the problem of getting the necessary information out of a company’s ERP system (Oracle, SAP, etc.). The out-of-the-box reports from these ERP systems aren’t adequate for managing FX risk, and AtlasFX provides visibility to the FX details that are necessary for the FX practitioners to do their jobs.
While extracting this information is critical, it is merely a starting point for optimal FX risk management. This is one area where AtlasFX differs from its competitor FiREapps. Instead of using the current snapshot of the balance sheet as a proxy for the future balance sheet position, AtlasFX includes balance sheet forecasting capabilities that greatly improve the accuracy of the hedges.
The AtlasFX team customizes the tool to fit the specific requirements of the company, while offering process improvements and best practices along the way at a pace that the client is comfortable with.
Another differentiator is that while FiREapps deals only with the Balance Sheet exposure, AtlasFX integrates with the Cash Flow hedging program as well, and eliminates unnecessary volatility in the management between those two programs.
Atlas pulls from the ERP only enough data to determine balance sheet and cash flow exposures (via FTP or secure network drive), which reduces extraction time and the amount of data in use from balance sheet and income statement accounts. However, historical exposure information is also maintained in order to compare current with past information. Cash flow forecasts and market information are then linked to the information from the ERP in order to calculate cash flow and balance sheet hedges, which in turn can be used to improve the next period’s forecasts.
This process reduces slippage from mid-month spot settlements of cash flow hedges, and reduces external trades by re-designating cash flow hedges to fair value. The result is a more accurate view of overall exposure used to calculate hedges and show how well they will work, which leads to better forecast accuracyand hedge results, as well as a completely reconciled balance sheet. Balance sheet and income statements are forward-looking, and users have access to related detailed analytics, as well as flexible and user-defined reports.
These reports allow users to know correlated risks across currencies, business and entities, with and without hedges, allowing them to decide which risks they do and don’t need to hedge according to their own policies. This reduces the costs of hedging while bringing currency risk to a reasonable level.
Growing Links
As Atlas gains traction, it is linking more with other systems to offer more integrated and automated experiences. An example of this is the partnership between AtlasFX and Reval, which has been in place since 2013. For customers utilizing both systems, AtlasFX links to the ERP system, calculates the exposures and recommended hedges, passes them on to the customer’s trading platform, which is then passed along to Reval for the accounting. Final trade details are then passed back into Atlas for post-trade checks and for the creation of detailed FX analytics, which help companies better understand their hedging results.
Our FXMPG2 member uses AtlasFX as the link between Oracle, FXall and Capella. Data from Oracle, Bloomberg and Controllership forecasts go into AtlasFX, which gives the hedge recommendations that go into FXall for execution and Capella for hedge accounting and trade data.
The company is also implementing AtlasFX for its cash flow management. This function will maintain forecast iterations, store hedge contract data, build policy guidelines, ensure proper hedge coverage, and pull actuals from Oracle instead of relying on FP&A forecast assumptions.
CUSTOMER FEEDBACK
One of our Foreign Exchange Managers’ Peer Group Two (FXMPG2) members who recently implemented AtlasFX illustrated exactly this scenario. His balance sheet program had historically been based in Excel and hedged 70-90 percent of exposures, with a forecast process focused on the ending balance sheet. Implementing AtlasFX provided a worldwide view of trial balance data by entity, currency and exposure type, validated “ghost balances” in unmanaged entities, increased managed entities, and increased hedged currencies.
The degree of organization and visibility attained cleaned up the FX process in a way that incorporated forecasting, hedging and balance sheet goals while reducing manual processes. Set-up generally takes a few hours and involves assessing the client’s needs and looking at ERP output to figure out what that system is using and how to link to it.