Corporate Hedging and Risk Management is comprised of many faucets including our core focus wich is hedging Market Risk and Operational Risk. We work with corporate clients and institutional investors who require a risk mitigating solution and hedging program to protect both returns and profits against the adverse conditions of the economy and financial markets. We are experienced in all of the specialty’s listed below and welcome your inquiry into the benefits of a customized risk analysis and hedging solution.
Operational Risk can be defined as the direct or indirect risk of loss through internal or external processes. Companies involved in exporting or importing can expect to have Foreign Exchange Risk. A company with operational offices in another country will be faced with foreign currency payroll considerations. Manufacturers are routinely faced with price fluctuations on forward purchases of base commodities.
If you factor the issues associated with borrowing money for large capital expeditures, interest rate fluctuations, political risk and a host of other issues that compound themselves when working in both local or foreign jurisdictions you can begin to understand that a prudent company will want to mitigate the loss of money through effective control of its Operational Risk.
The field of risk management can encompass a wide assortment of management practices, our expertise at Genuine Trading Solutions is largely driven by the prevention of financial loss from any or all of the items listed below:
- interest rate protection
- energy / petroleum products
- base metals us in manufacturing
- CO2 greenhouse gases
- call for a complete list
Market Risk is most often a concern for corporations, hedge funds, pension funds, endowments, individual portfolios or any entity with an exposure to the stock or bond market.
Large market swings can cause uncertainty, even fear at the prospect of negative portfolio returns. Individuals and companies without a risk management program are faced with only two options when attempting to protect against an anticipated downturn in the market.
1. Attempt to time an impending market correction by selling at the highest price possible prior to a pull back in prices:
This practice sounds easy, but to-date no person or professional money manager has successfully been able to consistently time the market before a correction occurs. At best, such an event is more the result of Good Luck rather than savvy market timing. To prove my point all you simply have to do is check the (publicly available) number of times a Mutual Fund manager has returned top quartile returns.
Virtually all market experts will tell you the greatest risk is not in missing a pull back but in liquidating a portfolio too soon and watching helpless as it continues its rise to new highs. When you consider the fees associated with selling then buying back plus the eventual re-entry at a higher price and the lost returns. Well, I dare say the stress of these events has convinced the most ardent market timer to abandon the practice and deny he even attempted such a fool hardy course of action.
2. Do nothing and watch helpless:
The do nothing approach takes many forms. At one end you have the Mutual Fund who by mandate must stay fully invested at all times and therefore is prohibited from moving into a cash position. At the other end is the smaller individual investor who falls in love with his stock and forgets the whole point of the exercise is to make money by increasing wealth for the eventual security of his family.
The do nothing approach or the “buy and forget” as we sometimes call it, is by far the most insidious of the two. These are often the stories read about in the newspaper of how the little guy has no chance against organized big business. When it comes to managing Market Risk, we specialize in the following markets:
- Fixed Income
- Foreign Exchange
- Commodity Basis hedging