21/06/2011
Collateral: a new challenge for hedge funds
According to a survey undertaken by service provider Algorithmics and consultant Chromozome, covering 80 buy-side companies (asset management firms, hedge funds, and pension funds), entitled “Collateral Management for the Buy Side: Emerging Challenges and Best Practices in a Changing Regulatory Environment,” rising costs for collateral management related to settlement requirements for over-the-counter derivative trades on both sides of the Atlantic could drive hedge funds to make less use of, or no longer to trade, OTC products.The study, published on 20 June, finds that 54% of respondents currently make margin calls only on a weekly basis. Where new regulations are in place, central counterparty clearing houses (CCP) may make daily margin calls, and even intra-day calls. In other words, hedge funds need to adapt their infrastructure to these new requirements, which also imply an increase in collateral levels.Andrew Aziz, executive vice president of the Risk Solutions unit at Algorithmics, says that buy-side professionals are facing an interesting evolution. “For the first time, they are subject to the same risk and operational requirements as their sell-side counterparts, due to regulatory requirements.”
