Active Counterparty Management: Critical to Managing Risk
A primary objective of treasury managers in the investment management industry is effective counterparty management – the ability to systematically measure and manage liquidity while minimizing the associated funding and counterparty concentration risks.
The ability to quickly and accurately identify counterparty related threats to funding costs, stability and asset safety can be the difference between staying in business during market dislocations — or not. Putting it bluntly, if you wait until a liquidity crisis hits to cobble together an analysis based on an array of spreadsheets, it is probably too late. Large successful fund managers have tracked key metrics about
their counterparties for years, resulting in more balanced and informed interactions with each of their counterparties.
During the 2008 crisis, managers armed with this powerful data set more successfully protected their assets—and their funds—from counterparty failures. Prudent counterparty management through systematic data intelligence did not escape the notice of astute fund investors. Many notable investors expanded their due diligence post-2008 to include a thorough analysis of detailed counterparty metrics as
well as how managers tracked and proactively managed counterparties on a daily basis.