It always surprises me with treasury management how much changes and yet how much stays the same. Having been in the treasury game for almost 25 years the basics remain the same – it’s all about risk management stupid. And by risk management I really mean risk minimization. The hedging instruments haven’t changed very much over the years. We still favour the plain vanilla of forwards, swaps and options. Sure the exotic instruments have come and gone and some have learnt the hard way about understanding what you are getting into, but even large organisations favour the simple approach, especially after the events of the last few years.
The basic controls surrounding treasury haven’t changed much either, even if not everyone complies the way they should. No – you can’t do the deal, check the bank confirmation and then provide the reporting as well. And, yes you should have a treasury policy too outlines the rules you have to abide by (identify your exposures and have sensible parameters about when and how much you should cover.)
What has changed though, and not just in the treasury space, is those small and medium enterprises (SME’s) now have access to the same tools and the same technology that larger organizations have, at an affordable price. Going back not so long, treasury management systems were expensive and the domain of only the very large organizations.
In more recent years we have seen a number of mid-tier systems come to market, many of which are saas (software as a service) solutions giving access to valuations, smart reporting and increasing the controls around the foreign exchange and interest rate management.
No longer can organizations argue that spreadsheets are their only option. Sure spreadsheets are great but we all know the issues with them – lack of controls, key man risk, backups, corruption of data, the list goes on. But everyone uses them for the flexibility and there is still a place for them when it comes to specific reporting reqirements. However now that there are systems like Hedgebook available, “SME” sized organizations have access to the tools that will allow then to record, report and value their treasury transactions and can manage their treasury exposures with the same technology and confidence that much larger organisations can – at an affordable price.
Because there’s one other thing that hasn’t changed over the years and that is financial markets are volatile and so knowing your position with confidence is the most important part of good risk management – and that won’t change either.
Richard Eaddy is the CEO and founder of Hedgebook and the Managing Director of ETOS Ltd, specialists in treasury outsourcing services. Richard has worked in the corporate treasury risk management industry for more than 20 years. He has held senior roles in large corporate treasury departments in both New Zealand and Europe, provided treasury risk management advice to major corporations and for the last ten years has headed up the largest treasury outsourcing company in Australasia. Richard can be contacted at [email protected].