Bloomberg has been quietly introducing hedge effectiveness capabilities to its terminal – and at no extra cost.
Ask a bunch of FX managers what system they use to manage hedges and hedge accounting and the usual combination of names come up, most notably Reval, SunGard’s Quantum, Thomson Reuters, SAP as well as a mention of Hedge Trackers. What you will not hear much of, if at all, is Bloomberg. Yet the company is making a foray into the market with capabilities already available on any one of its eponymous terminals – and for no more than the subscription price you’re already paying.
According to one user, Bloomberg, via spreadsheets available to download from its terminal, offers value-at-risk calculations (VaR), interest-rate hedge effectiveness and lately, FAS 157 calculations. “It’s a pretty slick product and we’ve looked at a lot of different platforms,” said the capital markets manager at US consumer goods company. “I know a lot of people are using Reval and that’s a pretty good product but we found that for us it had some serious limitations and it’s expensive.”
This manager reasons that using Reval and perhaps another third-party service for VaR or other analyses – some companies might incorporate several services – could in a year cost a company perhaps 10 times the cost of, say, one $1700ish-a-month Bloomberg terminal. The spreadsheets are available through Bloomberg’s portfolio analytics and risk (ALPHA) tool.
There are many companies that offer VaR transactions, the manager said, ”but not many of them can do a portfolio VaR that includes interest rates, FX and commodities.” He added that when running the reports, he can also sort by portfolio then by asset class and drill down to a lot of detail, down to the individual transaction. For hedge effectiveness, the manager said his company utilizes a Bloomberg spreadsheet to provide valuations for a given time range, showing daily, weekly or monthly valuation on interest rate swaps.
The VaR capability has been around for some time, the manager said, but the FAS 133 and FAS 157 spreadsheets are more recent. He said his team has been working with Bloomberg to work out any kinks in the system and to offer other tweaks. Beyond the initial input of the transactions, the manager said there’s not much maintenance. “It’s actually a lot less work than dealing with the treasury work station as far as linking hedge relationships,” he said.
Another positive is visibility. “You get to see what’s driving the relationship between the swap and the underlying debt.”
So far there are few if any downsides, the manager said, adding that Bloomberg is pretty responsive when it comes to problems and suggestions. “As we’ve been doing our testing I’ve been sharing the portfolios with Bloomberg so they can see what we’re doing where we’re going wrong or right and they point us in the right direction.”