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6th April 2022 | Whitepapers

Margin Management for Hedge Funds: An increasingly complex calculation

Today, Acuiti and Cassini Systems release the Margin Management for Hedge Funds: An Increasingly Complex Calculation report. 

Acuiti was commissioned by Cassini Systems to conduct a study of how Hedge Funds were managing margin and collateral in the face of UMR, heightened volatility and increased scrutiny of risk from prime brokers.

Some key findings were:

  • There remains significant uncertainty among hedge funds over whether they will be in scope for UMR Phase 6. This emanates to a large extent from the impact volatility is having on exposures but also from doubts as to whether actions taken such as switching into cleared instruments or spreading exposures will be enough to remain out of scope
  • This uncertainty is creating a risk for hedge funds that they could be caught out late by coming into scope for UMR late on without sufficient preparation for compliance
  • Hedge funds are becoming more sophisticated in terms of how they manage margin and collateral but there is a long way to go still:
    • Just 13% aggregate and analyze margin requirements intra-day
    • 78% of respondents consider margin when deciding where to trade but most of these only do so some of the time
    • 30% of respondents said they had a view of margin implications available to traders pre-trade

Funds are taking steps to optimize margin efficiency: More than half had renegotiated counterparty relationships, 44% shifted some trading to listed or cleared instruments and a fifth had invested in optimization software

Also in this report:

  • What actions have prime brokers taken with regards to their hedge fund clients following the collapse of Archegos Capital Management?
  • How have hedge funds changed the number of prime broker relationships?
  • What actions are hedge funds taking to mitigate the impact of higher margin requirements?
  • What are the top challenges hedge funds face in their collateral operations?

Download the full report below.