Case Studies

See below some of the work we have done:

We reviewed the liquidity, interest rate, inflation and counterparty risks for a multinational group engaged in property investments and business services.
Our review identified the most important risks, quantified them and presented a sensitivity of the group’s revenues and profitability to key market risks.
We looked at the group’s practices in managing its financial market risks and created a road map to improve its management of risk and reduce costs.
We developed a policy which the group could adopt immediately given its current level of resourcing and requirements.
The Strategic Review:
- ✔ helped the group’s senior management to identify current and future risks and opportunities; and
- ✔ provided a framework for proactive risk management and realisation of opportunities.

We reviewed various hedging options presented by the bankers of a major infrastructure fund during the refinancing of an existing facility which had previously been partly hedged.
Existing interest rate swaps were out of the money and various issues relating to termination or novation, maturity extension, credit charges, effect on covenants, etc. had to be addressed and finalised.
We made a difference by:
- ✔ aligning the business objectives more closely to the hedge.
- ✔ weeding out pure product/speculative considerations.
- ✔ removing suboptimal hedging considerations (such as a bank call option to make the hedge cheaper but suboptimal).
- ✔ managing the re-hedging exercise (thus saving precious management time during the extremely busy and sensitive refinancing period).
- ✔ reducing hedging costs by ensuring that credit charges were fair.

We worked with an emerging market fund manager who appointed us as an independent member of their ALCO.
We reviewed the ALCO matters prior to the meeting, attended the monthly meeting and worked with the management on various issues related to FX risks, interest rate risks, liquidity risks, counterparty risks and management of surplus cash. We also provided comments where appropriate on the management of risks of companies where this fund makes an investment. This ensured that the risks were managed as per the agreed policy.
On specific issues, we offered on-demand hedging services (such as on selection of best hedging product, execution, documentation support etc.).
We were able to add value:
- ✔ through our specialist input, independent oversight of risks, and saving of costs during execution as well as saving precious management time.

A private equity client wanted to enter into an interest rate swap to hedge the risk on the recent loan financing of a business.
Preliminary quotes from three of the client’s banks indicated material pricing variations for a simple interest rate swap.
We engaged with the best provider bank to discuss the pricing in detail which facilitated further improvement in the pricing from this bank. We agreed a minimum / maximum share of the hedge that they would get at this pricing.
We discussed with the other two banks their appetite at the lower hedge price.
We added value by:
- ✔ Benchmarking the hedge price “live”.
- ✔ Breaking down the cost of hedge.
- ✔ Securing a saving of hedging costs in excess of £500,000 for our client.

A corporate client had significant exposure to diesel fuel consumption and hence the potential future price increases of diesel.
Client did not know how to go about hedging fuel risk and if fuel hedging will help them in their business.

What we did:

We analysed client’s data to ascertain how they were exposed to fuel price risk.
This included assessing current and future business environment, financial position, budgets and client’s objectives and risk tolerance levels.
Following the assessment of fuel exposure, we prepared alternative hedging strategies and pros and cons of each hedging strategies.
We assisted the top-level management to decide the optimal hedging in line with their business objectives.
The adopted strategy was to hedge 2/3rd of the client’s fuel consumption for the next 12 months by using swaps.
We reviewed the post trade confirmation and provided independent trade valuations for accounting purposes.
We added value by:
- ✔ Saving significant costs on fuel hedge execution on an ongoing basis, and also by saving significant management time.

We reviewed a number of interest rate swaps that were mis-sold by UK banks to SME customers in a variety of business sectors.
We found that the banks mis-sold the swaps as they did not fully make the customers aware of the risks of those swaps. In all cases, customers were not made aware of the potential break-costs on the swaps. There were many other issues such as swaps exceeding the tenors of the underlying loans, customers having been sold exotic hedges, and customers not having being given the alternative of the Cap. Invariably, huge profits margins were charged by banks to the detriment of the customers.
We added value by:
- ✔ Strongly representing our clients with banks, and negotiating and securing substantial compensation for the losses our clients suffered due to mis-sold swaps.

We worked with a US Based international destressed debt asset manager which invested substantially in UK and Europe.
Their USD fund investors were exposed to the depreciation of GBP and EUR risks on investments made by the fund manager.
We reviewed the FX risks in the portfolio of this fund manager and aligned their hedging policy to their investors risk appetite given the investment horizons, hedging costs, and market parameters.
On behalf of the fund, we cost effectively executed FX hedges with the chosen hedge providers and rolled over the hedges as per the policy agreed with the fund.
We added value by:
- ✔ Our specialist input on FX risk management, selection of suitable hedging products, timely roll over, rebalancing of the hedging portfolio, and continuous monitoring of hedge effectiveness.

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Email:
info@derivativesvalue.co.uk