John Gleason’s (USA Assistant Treasurer, Hewlett Packard) presentation at Eurofinance Barcelona in October focused on how they have automated their counter-party risk and investment management. Not surprisingly HP’s investment strategy is based on 1. safety, 2. liquidity and 3. yield.
HP realised that they needed to improve and automate their investment management because their legacy processes and systems were not appropriate for today’s market. There were five steps in HP’s development of the new investment programme:
- drive understanding & buy-in with C-Suite / Board
- establish a reliable and timely process to measure counterparty risk
- improve the procedures to set and enforce risk limits
- align infrastructure, processes and product selection to reduce risk
- collateralize, where possible: CSA’s and Repos
- Just-in-Time cash management
- accelerate liquidity to IHB via automated pooling
- set cadence for ongoing monitoring & reporting.
Process for measuring counter-party risk
The new process for measuring counter-party risk:
Source & Copyright©2013 - Hewlett Packard Inc.
HP used a number of key data sources in calculating each banks counter-party risk and their bank limits including market risk data and Bloomberg’s bank CDS and ratings data.
Bringing it altogether
HP then brought together a combination of systems and data sources to enable them to model and manage their portfolios, carry out scenario evaluations, and process and distribute their reports:
Source & Copyright©2013 - Hewlett Packard Inc
The new system’s dashboard provides in-depth report summaries on each bank:
Source & Copyright©2013 - Hewlett Packard Inc. (N.B. Figures are illustrative only.)
It is not only the scale, but also the clarity of thought in developing such a solution that impresses. HP senior management can rest a little easier about their investments and exposures in today’s difficult and complex markets.