NeuGroups for FX managers confront new data opportunities and challenges during joint FX Summit meeting.
The key message from The NeuGroup’s FX Summit, a joint meeting of our FX Managers’ Peer Groups, was that more quality information leads to better decisions. Underscoring this message, presentations by co-sponsors Deutsche Bank and FiREapps provided numerous examples of how information, technology and analytics should be improving the hedging practices of multinational corporates.
FiREapps has built its business around helping multinationals get at better information about their FX exposures from their various ERP systems and other data sources. Wolfgang Koester, CEO and Co-Founder of FiREapps, said his company’s one word mission is “Confidence: giving treasures and CFO’s confidence that they know what their FX results impacting EPS actually will be.” In the latest release of FiREapps, there are numerous filters to perform analysis on the exposure data and drill down by currency, reporting entity and more to both better understand the sources of FX exposure on company balance sheets and validate with control frameworks that the data being drilled into represents real exposure. From there, treasury can calculate the net exposure and hedge it both more effectively and with higher levels of confidence.
Building on this theme, Ramon Bauza, Head of Deutsche Bank’s North America Capital Markets and Treasury Solutions Risk Advisory team, presented a simple way in which FX managers can hedge a higher percentage of their exposures to reduce the earnings volatility impact of FX at less cost. Such a strategy when combined with higher confidence in the validity of exposure information would give treasurers greater confidence to boost hedge ratios above the current 50% norm today without fear of ending up over hedged.
Not all the data trends will be positive for treasury, however. Participants also discussed the latest reporting requirements for derivatives trades under Dodd-Frank. Members expressed dismay at the administrative hassles expected in reporting inter-affiliate hedges, but also the public information that swap dealers (plus exchanges and SEFs) are obligated to disclose. Some model-based funds will invariably seek to pump this data into their super sophisticated analytical tools to try to discern patterns to help them predict and counter corporate FX trades. This helps explain the increased interest in Algo trading by corporates to help mask M&A-related and other sizeable FX transactions, especially in thinly-traded markets. eFX platforms, including Deutsche Bank’s, will therefore be increasingly easing the automation of such trade execution strategies and the regulatory reporting and other post-trade processing required by them.
Other highlights from the meeting included a presentation on commodity risk management by one of the group’s more experienced commodity hedgers and an update on the key drivers of the global economy and their impact on the USD, plus the latest on Venezuela. We thank Deutsche Bank and FiREapps for their sponsorship along with the members of both FXMPG 1 and 2 for their active participation.
The NeuGroup's FX Managers' Peer Groups have been serving FX managers from leading multinationals since 2002. These two invitation-only membership groups meet separately twice each year to share insight, experience and benchmark approaches to topical challenges. They conduct a joint summit meeting on a bi-annual basis.