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A Goldman Risk Management Tool Flying Under the Radar

By March 25, 2021No Comments

FX risk managers talk up a Goldman Sachs solution called Capital Markets Atlas to measure value at risk.

To no one’s surprise, a recent meeting of NeuGroup FX risk managers included plenty of talk about well-known vendors of exposure identification solutions like FireApps and AtlasFX, FX trading platforms including FxAll and 360T, and a variety of ERPs and TMSs.

  • But not everyone in the large virtual room had heard of a self-service tool from Goldman Sachs that some members are using to measure value at risk (VaR). Making matters a bit confusing: the name of the solution includes the word “atlas.” As in Goldman Sachs Capital Markets Atlas, which is part of the firm’s broader Marquee platform.

Self-service VaR. Goldman marketing materials say Capital Markets Atlas provides clients with “independent access” to the bank’s risk and pricing models with tools that help them understand how “active markets impact exposures and solutions” using a web-based application that is free for the bank’s clients.

  • The first member to mention Goldman’s tool at the meeting emphasized the benefit for risk managers of being able to perform VaR analysis without waiting for a bank to do it for them.
  • “You can run it on a real time basis on your own,” he said. “You run analysis whenever you need.”
  • In an interview after the meeting, Ketan Vyas, managing director in Goldman’s corporate risk analytics business, said, “What’s new is that you can do it yourself.”

More member buzz. Another member said he was impressed by a demo of the tool late last year. “I perform a lot of risk analysis monthly and it seems like the [Goldman] tool may be more user-friendly/point and click,” he said. “I am not sure it is as robust as the tools I use, but seems like a solid starting place for analysis if nothing else.”

  • One risk manager asked peers to contact him if they are using the Goldman Atlas tool for VaR. “I’m super interested in your thoughts on it. We just started using it, and it has come very far from where it was two years ago,” he said.
    • Goldman added the VaR tool to Atlas in 2018; Atlas debuted in 2015.
  • “The GS Atlas system is about value at risk, which is modeling that helps to quantify the risk,” the member said.  So given risk profile A, what is the potential impact of B if nothing is done? This helps a corporate decide what risk to manage (helps us decide what to do),” he said after the meeting.

Risk decomposition. The tool includes what Goldman calls a “risk decomposition model” that uses “market forwards, volatility and historical correlation parameters to quantify VaR on an individual and portfolio level.” Goldman says this allows corporates to:

  • Identify optimal hedge portfolios to meet risk and hedging cost goals.
  • Track the key drivers of currency risk to target hedges more efficiently.
  • Compare multiple hedging strategies across an array of risk metrics.

Sample portfolio. Goldman’s marketing material shows how VaR provides valuable insights for risk managers about their portfolios.

  • As the table above shows, the Canadian dollar (CAD) and the Mexican peso (MXN) contribute the largest amount of risk on an individual basis to a sample portfolio. See the figures marked 1.
  • “But when considered in the context of the broader portfolio of FX exposures, CAD actually represents a much lesser risk (~24% of the sample company’s total risk instead of ~38% if calculated on an individual basis),” Goldman’s slide says. “And MXN represents a much larger risk (70% in the context of the portfolio vs ~39% on an individual basis).”
  • The large difference in the figures marked 2 is explained by the differing levels of volatility of the two currencies.
Justin Jones

Author Justin Jones

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