Michael Bontrager and others from Chatham Financial involved in the project describe why ChathamDirect was developed and what client needs it meets in managing risk. A full transcription of the video is available below, but you can view the video here:
Mike Bontrager: For years, Chatham has been known as an advisory company but what people don’t know is we’re also a technology company and we’ve been for years. What we really believe is that we can bring advisory and technology together just to produce solutions in the markets that are just second to none.
Amol Dhargalkar: CFOs have been dealing with volatility in their businesses since the beginning of time. Chatham has really been working with them to help them mitigate that volatility in the interest rate, currency and commodity markets. We’ve found that there’s three key questions that companies ask. How do I quantify my risk? How do I assess that risk? Then ultimately, how do I account for and report on that risk?
Really, treasurers are being asked to be more strategic partners to CFOs to boards to the businesses within an organization. We found that they could benefit from the tools that we’ve been using since our inception, particularly the tools around quantitative analysis of their risks and hedge accounting. Ultimately, what companies are looking for are intelligent tools that help them manage and quantify their risks.
Jose Sabastro: We see those companies typically fall into one of two buckets. The first one is companies who’ve recently experienced a lot of growth internationally. The second type are companies who are already managing their risk and maybe have been doing it for some time but they’ve been doing it via more home-grown solutions such as Microsoft Excel.
ChathamDirect is a SaaS application really accessible anywhere around the world. It was designed with the very specific needs of corporate treasurers especially for those who have a cash flow hedging program or a balance sheet hedging program in place or who are considering establishing a program.
ChathamDirect is composed of four main modules; it’s exposure management, trading, valuations and hedge accounting. Those modules are put together to address the issues that you come across within the entire FX risk management process.
ChathamDirect’s exposure management module is really catered toward streamlining that whole process starting from the gathering of exposures from across the world and across many different entities, the netting of those exposures, the comparing of those net exposures against hedges that have already been put in place, the analysis of risk and then analytics that drive at a strategy for hedging that really look at what is the most optimal and cost-effective way for me to now mitigate these risks and what trades would I need to be able to put in place in order to be able to do that.
The third idea is really around the fact that we think integration of all of these highly complex areas really, really matters. What happens in accounting will affect what happens on the economic side. What happens on the economics will affect the capital. All of these areas of deep expertise really flow together.
The trade execution module integrates with third party trading platforms such that trades to be executed flow from ChathamDirect to the electronic trading platform and once executed that trade information flows right back into ChathamDirect and the hedge accounting and valuations process is kicked off automatically.
For the valuations module, we’ve really taken the models that we built over the last 20 years for valuing derivatives on a live basis and have incorporated those models into ChathamDirect. Those models are tested on a daily basis via our practitioners who trade over a billion and a half dollar’s worth of notional. We’ve also applied the models that we use for credit evaluation adjustments into that module.
The hedge accounting module streamlines the entire hedge accounting process from hedge designation memos to journal entries. In the highly complex and nuanced world of hedge accounting, ChathamDirect combines the proven excellence of our practitioners with an intuitive user experience providing best-in-class hedge accounting and compliance that will withstand the most critical auditors’ scrutiny. Our application is built in collaboration with our technology team, our risk advisory team and our hedge accounting advisory team. That unique combination creates a product that really provides visibility for our clients and gives them the ability to get their arms around their exposures and really understand them better. It streamlines that entire process.