Risk exposures outpacing hedging programs for corporates, according to Chatham Financial’s State of Financial Risk Management Report
Extensive research of publicly held U.S. corporations provides insight into risk management strategies and trends in the marketplace.
Kennett Square, PA, January 25, 2024 — Chatham Financial, a global leader in financial risk management advisory and technology, published its State of Financial Risk Management Report, an independent study of more than 1,500 U.S. public companies, examining risk exposures, hedging, capital markets activity, and hedge accounting practices.
Selected highlights of the report include:
- Interest rate risk hedging: The rising rate environment in 2022 disproportionately impacted smaller companies with less robust interest rate hedging practices negatively, as the study found that smaller companies are less likely to have an interest rate hedging strategy in place. The industry hedging the lowest proportion is natural resources and mining with 27%.
- Foreign currency risk hedging: Exposure to foreign currency risk was recorded as being up year-over-year. While a smaller percentage of companies are exposed to foreign currencies relative to interest rates, a larger percentage of companies with FX exposure are hedging their risk relative to interest rate risk.
- Commodities risk hedging: Relative to interest rate and foreign currency, commodity exposure is the least prevalent with 37% of companies in the study being exposed to at least one commodity. This is a 5% increase from the previous year’s findings as commodity prices generally rose over the course of 2022. Larger companies are more than twice as likely to be hedging their commodity exposures.
- Newly public companies: The report found that recently public companies (those that filed an S-1 within the last three years) are less likely to have a hedging strategy in place compared to mature companies that have been public for longer than three years. The largest disparity is among hedging FX exposure, as 56% of mature companies with FX exposure are hedging compared to just 32% of recently public companies.
“As noted in the report, 2022 was a year of change, with interest rates rising post-pandemic, and dollar strengthening we haven’t seen in 20 years,” said Amol Dhargalkar, Chairman and Managing Partner at Chatham Financial. “As companies are gaining exposures faster than hedging programs are being implemented, the analysis confirms the idea that most firms intend to let exposures grow until key thresholds are met before considering hedging programs. Our hope with this report is to provide our clients with insights to help them improve their own financial risk management practices, while raising awareness of hedging more broadly in the market.”
To download a copy of the report, please visit Chatham Financial's website.
Chatham Financial reviewed and analyzed 2022 annual 10-K filings of 1,523 publicly listed U.S. corporations, with revenues greater than $500 million, to provide insight into risk management strategies and trends in the marketplace. Chatham excluded certain industries in order to identify a population of companies whose practices are not skewed by the nature of the business they operate in. Examples of these exclusions would include banks, credit unions, insurance, investment banking, oil and gas refining, oil and gas production and exploration, and oil and gas transportation and storage.
Chatham classified companies into groupings based on annual revenues as well as into sectors and sub-sectors using the North American Industry Classification System (NAICS). For analysis purposes, Chatham identified five revenue groupings and ten broad sectors to compare companies in the data set. Revenue groupings were $0.5B–$1B, $1B–$2B, $2B–$5B, $5B–$20B, and companies greater than $20B. The ten primary industry sectors included manufacturing, professional and business services, trade, transportation and utilities, financial activities, information, natural resources and mining, leisure and hospitality, construction, education and health services, and other services.
About Chatham Financial
Chatham Financial is the largest independent financial risk management advisory and technology firm. A leader in debt and derivative solutions, Chatham provides clients with access to in-depth knowledge, innovative tools, and an incomparable team of over 700 employees to help mitigate risks associated with interest rate, foreign currency, and commodity exposures. Founded in 1991, Chatham serves more than 3,500 companies across a wide range of industries — handling over $1 trillion in transaction volume annually and helping businesses maximize their value in the capital markets, every day. To learn more, visit chathamfinancial.com.
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