The Rise Of Active Treasury Management

Introduction To Active Treasury Management

Hedge fund treasury management has traditionally been an operations function focused on cash management. The majority of funds have seen little reason to invest in optimising their treasury function as most are cash rich and have been posting little margin relative to their overall equity – in some cases lower than 30%.

However, over the last decade, so-called ‘active treasury management’ has been pioneered by a handful of the top fixed income funds. These funds are generating between 30 and 85 bps of additional return directly from treasury activities.

In our “The Rise Of Active Treasury Management” Ebook, we provide the ultimate guide on active treasury management techniques. We take a look at how treasury is a driver of alpha and how it can enhance the funds liquidity through three key processes. In addition, we also take a look at both sources of treasury alpha, unencumbered cash management and encumbered cash management.

How Does Treasury Drive Alpha

As active treasury management is critical to the success of all firms, we take a look at how treasury drives alpha in the first part of the Ebook. As mentioned previously, there are two sources of treasury alpha, unencumbered and encumbered cash management.

1. Unencumbered Cash Management

Every firm manages their unencumbered cash differently. With unencumbered cash management, cash levels vary depending on the firm’s strategy, but can be up to 90% of a fund’s assets. Therefore managing treasury actively can be a key differentiator and significantly boost the overall fund performance.

2. Encumbered Cash Management

Encumbered cash management is an area typically overlooked by most firms, yet it can give a competitive advantage for highly levered strategies. Managing encumbered cash can be highly beneficial for both managers and investors. To optimise encumbered cash, firms will engage in three types of activities. This is listed below and we go into detail about each activity in our Ebook.

1. Margin Optimisation

Margin optimisation can lead to the reduction of the amount of encumbered assets.

2. Collateral Optimisation

Once a firm has optimised its margin to decrease its encumbered cash it can look to optimise its encumbered cash by optimising the assets it posts as margin.

3. Liquidity Management

Liquidity management can help with forecasting margin requirements and help improve the overall liquidity profile of the fund.

How Does Treasury Enhance The Funds Liquidity?

In the last chapter of the Ebook we explore the importance of liquidity management and how active treasury management can increase the liquidity of a fund. We look at the techniques which enable firms to forecast margin requirements, both next day and longer term, as well as the benefit that reducing encumbered cash provides in improving overall fund liquidity.

Download Our Ebook To Learn More About Active Treasury Management Techniques

This blog is just a small glimpse into our Ebook. Our Ebook provides a comprehensive guide on active treasury management techniques, where we detail how you can utilise your treasury function to uncover and drive hidden alpha.

Moreover, we invite you to delve into our collection of Ebooks. Explore a wide selection of blogs on our insights page, such as our “Why Data Normalisation Is An Essential First Step In Treasury Automation” blog. Lastly, learn more about OpenGamma by watching our demo and taking a look at our product and solutions pages.