The Future of Treasury Management, Today
The nature of investing in a hedge fund strategy can be extremely lucrative, but with the rewards come risks. From the Financial Crisis fallout to the more recent collapse of Archegos Capital Management, it is evident that there is more to successful investment management than investing in the right security at the right time.
Oversight and control of a portfolio are a cornerstone of the fiduciary responsibility hedge funds commit to their investors. The collapse of Bear Stearns and Lehman Brothers are testament to the impact insufficient governance of counterparty exposures can have, and with the cost of borrowing rising, regulatory constraints increasing, and competition expanding, never has it been more important to have visibility to effectively manage risks and costs.
Meet Kayenta, a financial solutions provider dedicated to delivering transparency through technology and implementing the highest levels of treasury management efficiency for the hedge fund community. This innovative SaaS based fintech concentrates its efforts toward supporting the finance world with a holistic treasury management framework that reduces costs to improve investor returns and optimizes financing relationships for the benefit of both parties. Furthermore, the company is making the technology accessible to all through an aggressive entry price point with optional modules that can be added as required for the more complex and sophisticated strategies.
Kayenta’s product is fast-tracking the industry-wide problem of slow digital adoption. A Treasury Management System (TMS) needs to process vast amounts of differentiated data, all of which is entwined in a complex web of interactivity. Aggregation and normalization of data only delivers part of the solution, but to build the technology to complete the picture requires understanding, experience, and considerable programming skills. It’s for these reasons that only a handful of investment managers have dedicated the resources to build a TMS in-house, and why Kayenta’s technology is proving such a valuable third-party addition to the hedge fund tech stack.
It's not just the hedge funds that are benefiting from this innovation as their prime brokers, typically international investment banks with investors of their own, also stand to gain. There is a symbiotic relationship between hedge fund and prime broker, but the ever-changing operational environment makes it an increasingly delicate relationship to balance. Hedge funds are under pressure from their investors to reduce fees so in turn need to reduce costs, and prime brokers are in an increasingly regulatorily constrained and competitive market so need to allocate resources strategically.
With multiple prime broker relationships, each of which operates in its own distinctive manner with its own specific requirements, it is challenging enough for hedge funds to manage for their own needs let alone recognize and understand how to solve for the needs of their counterparts. This is where the first-hand experience of the Kayenta team further differentiates their solution.
Our technology has been designed by individuals who have worked in some of the most successful and reputable hedge funds and prime brokers out there, so we truly understand the needs of both
Foremost of those needs is data accuracy. With millions, or even billions, of dollars at stake it is imperative for hedge funds that they have confidence in the data they are using to make their investment decisions.
Kayenta have a unique solution as they integrate into a manager’s most trusted source of position data and then process through their proprietary accrual engine to calculate the associated financing costs. Not only does this provide the investment manager with a reliable presentation of their positions, but it also enables predicative calculations of financing accruals so that the impact of future transfers and executions can be accurately telegraphed.
The technology has a further application as it can be used to verify the finance bills the prime brokers are issuing, ensuring they are accurate and in-line with the agreements the two parties have in place. Behind each bill is a nexus of inputs that are nuanced for every financing arrangement at every prime broker, so it is no surprise that no other third-party provider has been able to successfully replicate these calculations. And again, it is for the benefit of both parties as Hagstrom summarizes:
Anyone who has worked in prime brokerage is likely to have encountered the unfortunate situation where bills were inadvertently miscalculated. The real problem comes when the error accumulates into a meaningful dollar value as the prime broker must find a way to compensate the hedge fund, and the hedge fund must figure out how to make the investors at the time of the error whole
But this is just one of the optional modules that Kayenta offers. Core to their Treasury Management System is visualization of the overall picture and the benefits a complete understanding can provide. As Hagstrom explains,
Think of Kayenta like a pyramid. At the base is a data lake that takes in all the relevant financing and treasury-related data, then an organizer breaks it down to the most granular level in a normalized structure, and finally at the top of the pyramid the key metrics, trends, and opportunities are summarized
Kayenta’s user interface is built with flexibility in mind. The responsibilities of the treasury function differ at each investment manager, as do the needs and priorities of the funds they oversee on any given day. With the ability to scrutinize data from multiple perspectives and aggregations, users can focus on the relevant areas for their role and optimize portfolios for the most pressing needs at that time.
Embracing the technology available today, Kayenta will even deliver the data back via API so that it can be integrated into existing software. This API-first approach is applied throughout the technology architecture, sourcing data and integrating into third party providers via this method wherever possible.
Third party integrations are fundamental to Kayenta’s vision of their future. They recognize the needs of their clients but are aware of their own limitations. Rather than build everything from scratch in-house they are leveraging the success of others and partnering with like-minded companies that are experts in their respective fields. Whether sourcing market data, making bespoke analysis calculations, or adding incremental functionality, by partnering with other market leaders Kayenta are building a complete solution that is becoming hard to ignore.
The time is ripe for Kayenta as they usher in this new era of treasury management for hedge funds. Investment managers cannot ignore the importance of their prime broker relationships, the risks they carry, and the costs they suffer. As Hagstrom points out,
It’s about understanding the magnitude of the costs and risks at stake. Hedge funds are paying banks billions of dollars a year in financing payments, and its likely to be the biggest share of their wallet in terms of fees paid, trumping even execution fees.
Kayenta truly understands the world of hedge fund financing and maintains hundreds of relationships within the industry that will inevitably fuel the growth of its TMS. Employing some of the most well-respected individuals, who have spent their entire professional careers in the equity financing and hedge fund space, further showcases their depth of commitment to this enterprise.
They thoroughly understand the nuances of the market and their insights, along with the propagation of fintech, provide the tools for the company to build, refine, and deploy the most effective Treasury Management System yet. It is rare to find such an interesting and resourceful mix of financial and technological prowess, but Kayenta and its staff are just as rare.
Kayenta recognizes this is a nuanced market and that the specifics make all the difference. Trusting an organization of such caliber is one investment that can be made with complete confidence.