As hedging derivatives now requires a much deeper understanding of credit modelling and increased pricing capacity usually safeguarded by investment banks, corporates have to navigate ever more complex parameters and structures, with significant consequences on earnings.
At Solum, we do not believe the outsourcing of finance and treasury functions for the sole purpose of setting up basic benchmarking exercises will provide any transparency nor help our clients create any sustainable value. Furthermore, we believe these methods are not addressing the current regulatory challenges and only marginally reduce the fees of banks at the expense of commercial relationships.
What makes more sense to us under the new regulatory regime of Basel III/CRD IV, is the outsourcing of derivatives and credit structuring technology.
At Solum, we bring independent expertise to ensure hedging solutions are designed in the context of the overall financial strategy, and before any benchmarking exercise, optimized within our client’s portfolios. By way of example, we believe capital usage as well as credit structuring expertise are essential to our clients in order to make insight-driven hedging decisions and create significant long term value.
Here are the kinds of questions we are called upon to answer:
- How can you best deal with opaque hedging proposals from your hedge providers, even with vanilla derivatives?
- Are your derivatives pricing tools adequate? Can you evaluate accurately the effectiveness of the strategy?
- Can you assess the credit of your hedging strategy on a standalone basis or at the portfolio level?
- At which stage of the structuring phase do you factor in pricing adjustments such as CVA, FVA, and KVA?
- How do you align with best execution and best market practice?
Our derivatives specialists combine extensive derivatives structuring and transactional experience across asset classes and counterparty credit to provide the following services:
- Independent modelling and structuring assistance
- Hedging strategy review and back testing validation
- Pricing adjustment by counterparty based on portfolio integration
- Derivatives pricing and execution support
- Portfolio auctioning and credit syndication assistance