PARTNER CONTENT
Hazeltree provides innovative cloud-based treasury and liquidity solutions to investment management firms, delivering enhanced transparency, liquidity, risk mitigation and increased IRR by optimising counterparty interactions, credit facilities, margin requirements, and fees. Joe Spiro, Director of Product Management, chats with Hedgeweek about some of the challenges and opportunities facing the company and its clients, and the drivers of both client demand and company growth.
What are the greatest risks facing both your business and your clients at present?
Over the last fifteen years, increased transparency in securities finance has been a major goal for regulators worldwide. Legislation in EMEA (SFTR) and, more recently, in the US (10c-1) places responsibility on firms to disclose their activities in a timely way. While the industry has no argument against increased transparency, some of our clients are concerned about the increased administrative reporting burdens and their impact on competitive proprietary trading concepts.
In addition, a recent BNP survey found that investors are expecting higher returns and better fund performance as interest rates stay higher for longer. The survey also shows that hedge funds themselves think that higher performance will take longer to achieve than investors think, as they catch up to the high interest rate environment, meaning our hedge fund clients need to manage their businesses even more effectively and efficiently in the short term and to prepare for the long term. Given the increasing pressure to diversify, implement new ideas, and expand the number of their counterparties, the need for a Treasury Management System (TMS)—one that can change depending on changing circumstances—is paramount.
Thirdly, Driven by market forces, better risk management, and regulatory mandates, the ecosystem in which Hazeltree operates is constantly changing. This past year, hedge funds were faced with a challenging economic environment, from inflation, higher interest rates, and banking failures, to complying with regulatory shifts, including UMR and T+1 settlement, bringing both challenges and opportunities for us and our clients.
To that end, we are continually developing our offerings to ensure we are catering not just to what our clients need now, but also to what they might need in the future, while maintaining our original aim of providing the most efficient, flexible TMS, supplemented by data intelligence to facilitate and promote their business models.
Can you outline the most impactful drivers of client demand in the coming year?
The need for both automation and gained efficiencies, as well as enhanced returns, are among the most impactful drivers of client demand.
Automation and efficiency have become hot-button topics, and firms have turned to technology partners to help them move into the next phase of the collateral management journey. Margin call workflows, leveraging distributed ledger technology to move collateral 24/7, and reconciling portfolios for dispute management, can all be automated – the technology for all of this already exists. Implementing it now can help firms optimize for efficiency and gain better control of their collateral management.
Gained efficiencies through a treasury management system can free up time, allowing firms to focus on ways to increase performance and enhance returns, while enhanced returns can be driven by better control of costs, such as benchmarking of securities finance rates, maximizing the use of available fully paid assets to lend, and leveraging data to identify market signals.
What have been the biggest drivers of growth within your business?
Driving Hazeltree’s growth is an industry need for transparency, efficiency, improved performance, fast and accurate execution, and risk mitigation. Firms look for technology that provides a high level of transparency into key functions, including liquidity, collateral, and risk factors. A robust TMS also provides direct connection to counterparties to manage and execute these interactions and exposes inconsistencies in process and risk.
The desire for customizable systems and intelligent insights has also been a huge driver of growth and innovation for Hazeltree. Alternative asset managers value the ability to easily access data, without navigating spreadsheets and portals, saving valuable time which is better spent driving their business.
Which are the most significant challenges in the hedge fund industry right now and how can they be best mitigated?
Over the last two years, the Federal Reserve raised its benchmark interest rate 11 times in an effort to cool price increases. Now that inflation has eased, analysts expect the Fed to hold rates steady before cutting them later this year. As a result of this “higher for longer” environment, hedge funds have seen their hurdle rates rise dramatically, putting pressure on managers to cut costs and find ways to boost performance to meet those expectations.
In times like this, key cost centers, such as operations and finance, become the hunting ground for improved efficiencies. Treasury is a key function to focus on as it’s an area where firms can cut costs as well as uncover new opportunities to create a profit center.
Putting capital to work and limiting the amount of “lazy cash” that can hamper potential returns is key and we have helped many clients improve efficiency in collateral management over the past year.
Firms that can automate and control this data daily – to identify how much excess there is, create the movements, execute wires, and show when they’re settled and when they fail – can significantly reduce their error-prone manual touchpoints and ensure the maximum amount of capital is working on behalf of the fund.
What role can technology play in portfolio risk management?
2023’s disruption in the banking industry has highlighted the role counterparty risk plays in liquidity and portfolio risk management. Even today, many CFOs and treasury professionals still navigate dozens of spreadsheets and bank portals daily, in order to get a read on their cash balances, counterparty exposure, collateral requirements, and margin calls.
These outdated processes are ripe for counterparty and operational risk, underscoring the importance of technology as a risk mitigation tool. Managing counterparty risk requires close monitoring of how counterparties are viewed by market participants, which means watching how securities issued by participants trade, and keeping an eye on rating actions, which can reveal issues about the financial health of a counterparty and related liquidity risks. Treasury management systems automate this process, ensuring more accurate evaluations while freeing up time.
Technology also provides visibility across treasury management. With one portal to view counterparty and banking relationships, collateral, and where cash is invested, firms can make better and more strategic decisions.
Joseph Spiro, Director of Product Management, Hazeltree – Joe has been part of the Collateral Management industry for over 25 years. Prior to joining Hazeltree in 2019, Joe held the position of US Head Collateral at Société Générale, where he was one of the principal members of the dealer community responsible for ushering in UMR phase 1 in 2016, as well as subsequent phases. Prior to SG, Joe held leadership positions at Merrill Lynch, Deutsche Bank and BNY Mellon. Joseph has contributed to ISDA and other industry working groups on the topic of collateral management and has been a contributor to ISDA publications in the field of collateral management. At Hazeltree, he is focused on helping Hazeltree’s buy-side clients to improve their collateral management process, to increase efficiency, reduce risk and increase liquidity. Joe holds an undergraduate degree in Economics from Rutgers University, and a Masters in Business Administration from New York University Stern School of Business.
