A quick look at what’s on iTreasurer’s radar screen this week.
Several topics of interest came up in this week’s iTreasurer editorial meeting. These included how some banks are wary of using swap execution facilities (SEFs) and a new portal to invest in hedge funds.
SEF Bumps
At a recent meeting of the NeuGroup’s FX Managers’ Peer Group, it was noted that at least two banks are having an issue with using SEFs for FX. According to one banker, a number of issues remain unresolved with their use, including:
- how to align SEF confirms and contracts with well-established FX industry standard terms, fall-backs and definitions (such as EMTA terms and fall-backs);
- how to ensure that bilateral agreements (such as ISDA Master Agreements) continue to govern trades executed on a SEF; and
- questions around reporting of SEF trades.
Since SEFs are in their budding days, the industry and others are working with the CFTC to resolve those issues with the CFTC, including possibly obtaining a short-term no-action relief (pending longer term solutions, which may require technological build out on the part of the SEFs). Another observer noted that if many banks are hesitant due to the same issues, the CFTC would “act within its power to preserve the functioning of the market.” If it’s just confined to a couple banks, those banks likely “would have to think harder about whether they wanted to maintain their non-participation in light of other banks’ comfort level with the documentation.”
Hedge Fund Portal
With a persistent near-zero interest rate environment, many corporate treasurers are looking far and wide for better returns. Some are widening their investment mandates to include slightly riskier assets, including lower credits and hedge funds.
One new portal that a few treasurers in the NeuGroup universe are exploring is from Crystal Capital that provides qualified investors with access to institutional-quality hedge fund portfolios that they ordinarily wouldn’t have access to; and this can be done with as little as a $1 million investment and no per-manager minimum. Some treasurers are exploring dipping their toes into what could potentially provide a safe connection to hedge funds and their famous returns. According to Deer Isle literature, portfolios are “customized to meet investors’ unique return, risk, liquidity, diversification, strategy and allocation objectives; and investors benefit from separately managed hedge fund portfolios, segregated asset protection, and liquidity control.”
Could be the answer to those investors looking for return without too much risk.