Welcome to this ACT video webinar

Transcription

1 Welcome to this ACT video webinar Don t fear the repo 16 June BST Sponsored by Sponsored by

2 Introduc=on Michelle Price Associate Director, Policy and Technical ACT

3 ACT Webinar Opportunities for corporate treasurers in the repo market June 2015

4 Euroclear group in the world 850 European participants 610 non-european participants 24 European markets 19 non-european markets More than 1,167,338 bonds, equities and funds More than EUR 1tr. cross-market, cross-instrument collateral Multi-market group structure combining international and domestic services 250+ triparty counterparties 4

5 Risk management of treasury investments Introduction Main drivers for corporate treasurers to opt for repos Preserve capital Decrease direct banking exposure Meet yield targets

6 Risk management of treasury investments From return on capital to return of capital Preserve capital Repos introduce the concept of double indemnity first line of defense second line of defense The exposure to the bank is mitigated by the collateral received In the event of default of the repo counterparty, the cash investor recovers its investment by selling the collateral Corporate treasurer Cash 200m Securities Bank

7 Risk management of treasury investments From return on capital to return of capital Meet yield targets The repo markets offers a wide range of collateral baskets to meet the yield targets of cash investors Indicative repo rates (June 2015)

8 Collateral management The power of triparty Double indemnity implies collateral and collateral implies collateral management! Outsource the management of your collateral to a leading triparty agent Focus on the economics of the trade Delegate the burden of managing collateral No direct investment, no servicing fees

9 Risk management of treasury investments Barriers to entry The Challenges The solutions Heavy legal documentation Lengthy negotiation of bilateral contracts Join the RepoAccess community Complexity of managing collateral Opt for proven triparty solutions Low rate environment Adjust your basket of collateral to meet yield targets Limited price discovery Select a trading venue (e.g. Société Générale ACM, DBV-X, )

10 Euroclear Bank RepoAccess Legal framework Bilateral repo agreement (GMRA) The agency agreement enables Euroclear to handle the set-up of the GMRA Repurchase Service Agreement Corporate treasurer Agency agreement Bank 10

11 Triparty collateral management Benefits for corporates The best of both worlds! Join the community and Benefit from double indemnity on your cash investments Meet your maturity targets Design a collateral basket to meet your yield target Outsource the management of your collateral to a triparty agent Delegate operational burdens to a specialist Avoid direct investment and all at no cost as banks bear collateral management fees

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13 Don t fear the repo 16 th June 2015 Matt Shelley Group Treasurer

14 Agenda 1. Background on 3i 2. 3i Treasury 3. Why 3i decided to use repo 4. How 3i uses repo 5. Key learnings / watch-outs 6. Wrap-up

15 1. About 3i Private Equity Infrastructure Debt Management Investing in mid-market companies with an enterprise value between 100 and 500m, taking a majority take. New investment is primarily focused on northern Europe and North America Investing principally in core economic infrastructure in Europe as well as primary PPP and low-risk energy projects Management of funds, which invest in senior secured loans in a wide range of typically large private companies in Europe and North America, specialising in the management of CLOs 3.8bn/ AUM* 2.5bn AUM* 7.2bn AUM* * As at 31 March Total assets under management (AUM) is defined as assets owned, managed and advised by 3i. For more information, go to

16 2. 3i Treasury Activities Treasury matters for 3i Group plc (3iG) and 3i Infrastructure plc (3iN) Cash & Liquidity FX risk management 3iN net investment hedging 3iG transaction hedging on Private Equity (PE) investment and divestment cash flows Debt Supporting PE investee companies with interest rate hedging Pension Investment Committee Team Front Office Matt Shelley & Ian Cooper Back Office x 2 employees

17 3. Why 3i decided to use repo Short term deposits have become unattractive for banks, particularly from Non- Bank Financial Institutions such as 3i Proposed MMF regulations didn t look positive Too much diversity can be a bad thing Didn t want large single name bank exposures from a credit perspective Didn t want too many small investments due to resource constraints Segregated mandates create many of the concerns that the proposed MMF regulations do Had already negotiated a GMRA for as part of establishing a new CLO, so had some experience I view repo as being complementary to MMFs

18 4. How 3i uses Repo Set-up 3i Group plc and 3i Infrastructure plc tri-party accounts at Euroclear 3i Group plc tri-party accounts at Clearstream Collateral sets: Treasuries, Gilts, Bunds, Dutch Sovereigns no restrictions, no haircuts GMRAs executed with Lloyds, JP Morgan, NAB, RBC, Barclays, Citi, HSBC, RBS, Standard Chartered Execution Execute on Bloomberg chat, bank sends RPOV to dealer TMS record and Bloomberg RPOV checked by back office Front office allocate and affirm transaction to Euroclear and Clearstream through Bloomberg

19 4. How 3i uses Repo (cont.) Collateral monitoring Collateral positions ( ed reports) monitored by back office and Depository Approach to credit risk Focus on the primary counterparty credit, not the collateral Processes established to sell the collateral in the event of a counterparty default Tenor Up to 2 month maturity, taking advantage of short term repo yields on our collateral sets

20 5. Key learnings and watch-outs Set-up GMRAs aren t difficult to negotiate some law firms do a good guide to them. A good number of terms are overridden by the tri-party agreement anyway Some banks only use Euroclear or Clearstream The set-up process with Euroclear and Clearstream can take time Both agencies will guide you through the process Banks aren t generally used to using Bloomberg for tri-party trade confirmations, generally using it for bilateral repo. The first trade always fails, give yourself time to do a test trade Gilts tend to be held in Crest for bilateral repo, not all counterparties are willing to move them to tri-party arrangements Collateral The psychology of repo is fascinating people jump straight to the collateral risk Make sure you have robust processes to sell collateral in the event of a default Execution Shorter dated repo for risk free collateral is a sweet spot on the yield curve Notice repo (LCR based) seems to be attractive for banks for higher risk collateral

21 6. Wrap-up Repo is a useful diversification from money market funds for 3i The initial investment of time has been worth it Can take on new repo counterparties relatively quickly Now normal course of business for 3i

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23 The panel Chair Michelle Price Associate Director, Policy & Technical, ACT Speakers Olivier de Schaetzen Director, Head of Product SoluFons, Global Markets Euroclear MaE Shelley Group Treasurer 3i

24 Chair s closing remarks Michelle Price Associate Director, Policy & Technical ACT

25 FORTHCOMING EVENTS ACT webinar: making working capital work for you 30 June 2015 ACT webinar: adap=ng to the changing tax landscape 7 July 2015 ACT Asia Conference 2 September 2015 Hong Kong ACT Working Capital Conference 15 September 2015 London ACT Corporate Funding Conference 28 October 2015 London ACT Annual Dinner 11 November 2015 London treasurers.org/events

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