Hazeltree and Northern Trust Alternative Fund Services (NTAFS) published a report, “Weathering the 2020 Storm: Market Volatility, Location Disruption and Record Volumes.” The analysis examines the market impact of COVID-19, highlighting new operational challenges facing investment managers that require immediate attention.
The analysis observes trends across both NTAFS and Hazeltree clients and:
- compares liquidity metrics experienced in March/April 2020 versus prior periods as tracked by NTAFS and Hazeltree
- highlights the emphasis placed upon cash and liquidity management practices during these uncertain times
- details a new range of concerns from investors, introducing questions managers can expect during investor operational due diligence reviews
- stresses the importance of robust processes and technology to effectively manage cash, liquidity and collateral during this new “work from home” operating model.
From the report: “Median margin call amount rose by 38%, but more importantly so did dispute activity. NTAFS saw the number of collateral disputes nearly double, with the average client dispute increasing almost 4X, and the median collateral dispute outpacing the median call amount with an increase of over 80%. Similar to wires, the change in volume alone highlighted the importance of having technology and automation in managing the collateral process, which is even more critical given the impact on liquidity.”
According to the report: “With liquidity being tracked and managed across multiple counterparties and products, it was a distinct advantage (if not a necessity) for managers to leverage the right technology to be able to do this in an automated way.”
Peter Sanchez, head of Alternative Fund and Omnium Business Services at Northern Trust, said in a statement: “Asset managers faced pressure beginning in March, not only from market volatility but also from needing to execute on critical operational functions in a work-from-home environment. The challenges highlight the importance for alternative fund managers to have the scalability, security and systems to operationally manage such a crisis – whether in-house or through a partnership with a Fund Administrator or another provider.”
Sameer Shalaby, president and CEO of Hazeltree, said in a statement: “The significant increase in volumes and volatility during March have resulted in heavy focus across clients on implementing cash and liquidity controls, especially those that rely on manual LOA processes to move cash. With the increased disruption on client networks, we have been onboarding new clients to help them automate their manual cash processes.”