Finadium has released a new report, Building a Culture of Collateral Management at US Asset Managers. The report presents the first part of Finadium’s 2012 asset manager survey and a portfolio analysis for collateral optimization. Distribution rights to the report have been purchased by SunGard, making the report free through SunGard representatives.
Most US asset managers are beginning to consider the implications of effective collateral management for their portfolios. Basel III and Dodd-Frank are driving this change, each with their own overlapping requirements for collateral management on and off central counterparties (CCPs). Although there are standout exceptions, US managers are reluctantly embracing the new rules. They recognize that they must act soon or risk either an operational failure or a loss of competitive returns relative to their more advanced peers. US managers also know that building a strong collateral management practice requires changing the culture of collateral management, including how it is viewed and the expertise of internal operations and portfolio management teams.
In this report Finadium presents why building a culture of collateral management in the US is important from a financial and competitive standpoint. The report shows that without more advanced practices, the majority of US asset managers will lose ground to domestic and international firms that are already more sophisticated in their collateral usage. This is not a hypothetical argument; in an era of highly competitive returns, 25 basis points on an annual basis may mean the difference between a top-rated fund and a fund that comes in at the middle of the pack. The sooner that US investment firms look closely at the collateral management that new financial regulations mandate, the better they will be able to maintain their competitive standings in the marketplace.
The report presents six lessons on building a US culture of collateral management as noted by asset managers themselves. These lessons range from the mechanics of internal collateral management to market developments that will encourage managers to take action sooner rather than later.