Corporate Hedging and Risk Management is comprised of many facets. Including our core strength which is hedging Market Risk and Operational Risk. Our clientele are corporate clients and institutional investors who require risk mitigation strategies along with a detailed hedging program. A sound risk mitigation strategy is used 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. We welcome your inquiry into the benefits of out-sourcing a customized risk analysis and hedging solution.
Market Risk is most often a concern for corporations, hedge funds, pension funds, endowments, individual portfolios or any entity with an exposure to the economy including the stock or bond market.
Large market swings can cause uncertainty. Even fear at the prospect of negative portfolio returns. When attempting to protect against an anticipated downturn in the market. Individuals and companies without a risk management program are faced with only two options .
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. Then watch 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 then 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 the fund manager is prohibited from moving into a cash position. At the other end is the smaller individual investor. This investor falls in love with his stock and forgets the whole point of the exercise is to make money the goal is to increase 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. The stories of how the little guy has no chance against organized big business, we’ve all read them. When it comes to managing Market Risk, we specialize in the following markets:
- Fixed Income;
- Foreign Exchange;
- Commodity Basis hedging;
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 their base product.
If you factor the issues associated with borrowing money for large capital expenditures. Risks such as 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 and corporate hedging 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
I’ll bet you’re wondering what to do next?