Fund managers fear short-term liquidity issues; Counterparty failure could put trading positions at risk; Investors are regularly monitoring banks' credit ratings
Global fund managers are exploring ways to spread their counterparty risk, with many regularly monitoring the credit ratings of their dealer banks following the recent banking crisis, according to an industry survey released on Wednesday.
Concerned that possible future bank failures could cause short-term liquidity squeezes or leave them without a provider for foreign exchange services to make payroll or key vendor payments, 80% of fund managers are now looking to diversify their counterparties, according to the 2023 MillTechFX survey.
MillTechFX, the fintech arm of specialist currency manager Millennium Global, surveyed 250 senior decision-makers at global asset management firms in the United Kingdom.
Fund managers use counterparties such as banks to trade foreign exchange or hedge currency risks. A counterparty's failure could put their hedges and the collateral that secures them in jeopardy.
That number rises to 100% for chief executives, indicating a strong desire from the heads of these institutions to review their banking setup to ensure proper systems are in place to mitigate the impact of any future crisis, the survey said.
An earlier survey of fund managers in North America by MillTech found a similar percentage looking at further diversification.
"One of the big lessons for fund managers from recent events in the banking industry is the importance of having access to multiple counterparties," said Eric Huttman, CEO at MillTechFX.
The collapse of several regional and mid-sized U.S. lenders and the Swiss government-orchestrated rescue of Credit Suisse by UBS (UBSG.S) sent shock waves through global markets....
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