Photo of James Clephane, Inchcape.

Prior to the 2008 financial crisis, like many corporate treasuries, Inchcape’s treasury department placed a great deal of emphasis on credit ratings agencies. The company relied on the AAA assessments and the agencies gave funds as a method of determining the safety of its short-term investment portfolios.

“We decided that an internal expertise in fund exposure due diligence would be a more intelligent way to efficiently manage credit and liquidity risk,” says James Clephane, Treasury Dealing Manager at Inchcape. “We also felt that the company’s liquidity investments weren’t sufficiently diversified.” In short, the fund investments were largely relationship banking-based and the company knew a more proactive, more varied approach was required.

Moreover, the company was conscious that its 26 market segments had vastly differing credit conditions that needed to be taken into account more. For example, Inchcape is the distributor for Toyota and Lexus in Greece. “Inchcape needed to be able to more decisively monitor the financial status of these segments, while achieving our investment guidelines and remaining compliant,” Clephane explains. Better audit records and an improved archival process for treasury investments were desired.

This was easier said than done though as gathering and normalising all the data from across the globe was overwhelming, particularly with a small treasury team of only four people. As such, Inchcape chose Institutional Cash Distributors (ICD) to bring simplicity and visibility to its trading and risk management records. As a starting point, ICD provided Inchcape with a money market fund (MMF) trading portal. On top of this, ICD gave support in the form of best practice methodologies, which in many ways drove Inchcape’s treasury to become more sophisticated, leveraging core practices as well as contemporary technologies and techniques.

The company is now able to effectively and efficiently manage credit and liquidity risk with an end-to-end investment process, thanks to ICD’s Transparency Plus® exposure analytics application and a DACOA (diversify, analyse, comply, optimise, and archive methodology) approach to MMF trading. Embracing diversification in its short-term investment portfolio and aiming to mitigate credit and liquidity risk, Inchcape now invests in multiple MMFs. In addition, the treasury sets a maximum investment in a fund’s total assets under management, a maximum investment in any single fund holding issuer, a maximum investment in any country outside its domicile and only invests in rated funds.

Inchcape also analyses various fund metrics to create a balanced investment portfolio that matches the investment objectives and risk tolerance. Furthermore, Inchcape ensures compliance within the limits of the company’s investment guidelines, as determined by its Board of Directors, with regard to maximum investment limits and fund ratings criteria.

Says Clephane: “Once the portfolio is properly diversified, positions are analysed and compliance is achieved, we generate a variety of potential scenarios in order to maximise return. A real benefit of using ICD Transparency Plus® is that the scenarios are generated in real-time.”

“Leveraging an advanced MMF trading portal with deeply integrated fund exposure analytics has been transformational for the company’s treasury department,” says Clephane. “We have been able to quickly implement ICD’s DACOA best practices process, and with an exposure analytics engine built into the trading portal, this has enabled us to effectively and efficiently manage our credit and liquidity risk.” Applying ICD’s technologies and techniques has also generated significant process efficiencies, productivity gains, yield enhancement, risk mitigation, best practices and departmental cost savings for Inchcape.