S G Thampi: Increasingly the role of a Treasurer in an Organization is becoming more important and separated from the CFO's role. The role and the department is being spun off as a Revenue Centre. Going forward - what do you see?
Ravi Kumar: With increasing volatility in interest rates, different stands taken by Central Banks all over the world to protect their own interests and the overall exposure a company has in various financial assets (which contribute more than 50 % of their real assets) means that any edge the company can get by obtaining superior yields on these assets will contribute directly to their bottom line. These assets and liabilities can be surplus cash, borrowings or investments. So a Treasurer is here to stay and he has the very specific role of ensuring that Global events, volatility and other perceived and real risks are harnessed to the benefit of the Company.
S G Thampi: What are the products that a Corporate Treasurer uses to manage assets and liabilities?
Ravi Kumar: Show me your Cash flows and let us engineer a bespoke solution - seems to be the mantra in almost all cases. There is an explosion in the last few years as far as innovation goes, for designing solutions based on needs and based on short term to long term views. For example there is a widespread view that the Quantitative easing commenced by the Federal Reserve Board will lead to interest rates rising and easy money becomes less available. So if you are a borrower what would you do to reduce your interest payout? If you have surplus - you need a plan to increase your yield! There are several products available to help you mitigate the risks with respect to interest rate volatility. These are for both the asset side and the liability side of the balance sheet. The new kind of risk that is gaining ground is the Competitive advantage risk. A product developed in a Country having a devalued currency will give the manufacturer an advantage over a product created in a Country whose currency has appreciated. We have seen this before when Japanese and Korean Car Makers flooded the markets in Europe and America.
S G Thampi: Is there is a dependency on Technology to handle increasingly complex products, engineering bespoke solutions and monitoring and controlling Financial assets, liabilities and the activities of the Corporate Treasurer.
Ravi Kumar: There are three pillars here. They are first - Financial Market innovations, second -emergence of new technologies with faster processors, bigger data storage, reliable architecture, easy and user friendly access and third the Regulators who are increasingly by their actions controlling and impacting the markets. The Market player’s needs technology to grasp the impact of the confluence of these three forces, technology that can provide relevant and timely information, transparent and clear bench marks closely aligned with the markets. It will be of great value and going forward I can definitely state that there is no way Financial Innovation can go on without ever improving technological support.
S G Thampi: Global events can impact markets and create volatility which can go beyond a regulators ability to control. Markets get buffeted and an uncertain period can be very unnerving for a Treasurer. How does a Treasurer address that, given the fact that news can flow from many directions and can impact decisions without any ability to verify the facts.
Ravi Kumar: Communication Technology has improved. Rapid innovations, wireless speeds, Smartphone's etc means that all market players are in touch 24x7. News flows from many directions. Ultimately decisions have to be taken. There is abundant news, reviews, MIS from many sources and a fairly clear picture can be understood within a short period of time.
S G Thampi: Treasury operations and markets have shifted from the dealing rooms of banks into the dealing rooms of corporates. Many Bank dealers and Treasurers have moved to Organizations. Similar infrastructure which only Banks had earlier, is now available with Corporates. What is the impact going forward? Will banks be sidelined?
Ravi Kumar: The Volker rule placed some restrictions on the speculative trading done by Banks. Banks therefore have trimmed their dealing rooms and is emerging as a facilitator for managing client funds. So Corporates today a choice. Their business goes to the Banks who manages provides best services, who provides tailor made financial innovations at beneficial rates. Corporates are witnessing global events and increasingly they want a say in monitoring their assets to tide over shocks that global events periodically deliver to the system. Unpredictable events that impact their fortunes (termed as Black swan events) are happening more often and mathematical models cannot mimic or predict such events and their after-effects as each event is quite specific. A clearly enunciated treasury policy is needed and yes, the Organizations will have a increased say in the way their assets are handled and they would like to do it directly to maintain independence and secrecy. All this provides IT Companies to develop and deliver systems that facilitates the Corporate Treasurer to obtain information on Liquidity and stop loss based on alerts.
S G Thampi: Is individual participation far off? Considering that there are more and more billionaires and even well informed and reasonably well to do people in Middle Class who are not risk averse? Will such products be of use to them?
Ravi Kumar: I Think this is the next logical step. The consequences for the wealth management industry managing the portfolios of High Net Worth Individuals will have to improve transparency and also cope with increased demand for better performance at risk of losing business. The products will help in hedging exposures and also in monitoring assets. I see mutual funds and pension funds using these tools and it will slowly percolate to the common man as well. I already see these happening in stock exchanges where individuals trade and with commodity trading and currency trading thrown open, there will be more awareness which will lead to the increased use of these products.
You can read More such articles from our Newsletter