Several macro trends, including global regulatory reform, the tightening of expense ratios, the rise of passive funds and the proliferation of transactions requiring collateral, are forcing asset managers to reevaluate how they view and approach collateral management.
The latest paper in our InsideOps series examines three ways that firms could improve this increasingly important business function:
Operating model changes: By moving from a segregated process to a centralized function in the middle office, firms could use resources more effectively and gain a consistent view of collateral management across collateral types and counterparties.
Technology upgrades: Whether a firm chooses to build functionality in-house or leverage external software, technology upgrades could help standardize the collateral management process, address regulatory and risk management requirements, and more.
Outsourcing: If a firm wants to leverage technology without supporting it, or has already outsourced other middle-office functions, then outsourcing collateral management to a third-party provider may prove to be beneficial.
Once a perfunctory activity for supporting trading strategies, collateral management is becoming a strategic component of firm operations, risk management and investment decision support. It’s time for asset managers to take a closer look, and decide on whether they need to take steps to improve.