Risk Managers Face an Inflection Point Without a Clear Direction

By September 21, 2020No Comments

Key takeaways from the FX Managers’ Peer Group 2 2020 H2 Meeting, sponsored by Societe Generale.  

By Joseph Neu 

NeuGroup’s second-half meeting season got off to a great start with the FX Managers’ Peer Group 2 last week. Here are some key takeaways:

We are at an inflection point, but to what? It feels like we are at an inflection point that requires MNCs to adjust their FX hedging. The reasons include the economic impact of Covid-19 on business, early crisis concerns about liquidity pushing out liabilities, unprecedented monetary intervention and fiscal stimulus—plus a Fed policy shift to make it harder for inflation fears to move US rates off the zero-bound. Less clear is where we go from here. 

  • Not everyone, for example, is convinced that the US dollar is going from structurally strong to weak (even against the euro). 
  • And while volatility is higher than pre-Covid, it’s higher off extreme lows. 
  • Plus, forecasts of underlying exposures are starting to become less cloudy. 

So maybe it’s time to get more sophisticated at the margins and, perhaps, extend a layering program out another year or collar hedge gains, rather than make wholesale changes to your FX program. 

  • Tail risk hedging would make sense—but given how markets are behaving, what would work? 

Data repositories are in vogue. Despite working from home and the turmoil of Covid-19, several members have continued to push ahead. Their technology projects bring data into lakes, warehouses and other containers where it can be more readily viewed, analyzed with BI tools and fed into dashboards for on-demand reporting. 

  • Progress is promising and once quality data is in one place machines, algos and AI can learn from it. 
  • Bonus question: If the TMS is not relied on to be the data repository and the reporting and analysis are taking place outside of it, then how valuable is the TMS? 

Users vs. builders. Much of the code, analysis and BI tool building starts with power users in treasury who teach themselves to become builders. The trouble is that not everyone is a builder, nor can they always find the time to sustain their building skill and maintain the code to scale securely. 

  • The problem compounds when everyone is free to use whatever tool they have taught themselves to use on the web. 
  • This is where it is important to hand off to an IT center of excellence, which needs to have good finance function acumen, and a subgroup with good treasury function acumen. 

It’s the lack of ready access to these COEs that drives interested professionals in treasury to a self-service model and to teach themselves to become builders. 

  • So, CFOs and treasurers would do well to determine a balance between power users that become builders and investing in sufficient, dedicated builder professionals to serve the needs of their important specialty functions.
Joseph Neu

Author Joseph Neu

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