SVP & Treasurer
Hilton is a leading global hospitality company, comprising more than 4,800 managed, franchised, owned and leased hotels and timeshare properties with nearly 789,000 rooms in 104 countries and territories.
Photography is as much a science as it is an art form. Indeed, most photographers will tell you that capturing the perfect image calls for a degree of luck, spontaneity and flair. But it also requires the precise set-up of a complex piece of equipment; the smallest change can make or break a photo. It is therefore only when art and science converge that a truly great image can be created.
It is the application of both art and science that interests Fred Schacknies, SVP & Treasurer at Hilton. A keen amateur photographer, Schacknies is fascinated by the processes behind taking a photo – particularly how the science can foster the art.
It is a fascination that also extends into his professional life. Throughout his career, Schacknies has sought roles that focus on building out the treasury function. His approach to this is to create robust processes and controls, while also allowing his team to use their skills, improve on these and challenge the status quo – thereby combining science with art. His goal is to create treasury functions that not only work today, but, like a great photo, stand the test of time.
Sell side to buy side
Despite his philosophical and considered approach to treasury, Schacknies admits that his path to the profession was far from mapped out. “I started out my career in FX sales and trading,” he notes. “This was somewhat random as I stumbled into the role after graduating from university.”
Working on the sales side, however, gave Schacknies an insight into the world on the other side of the telephone. “I became very curious about why people were making these decisions to trade FX and the process behind this,” he says. “Eventually my interest was piqued, which prompted me to obtain an MBA and move into the corporate sphere.”
Following business school, Schacknies’ first role was at Lucent Technologies where he ran the in-house bank. After eight years at the company, he moved to Constellation Energy to become Assistant Treasurer. Then two years later, in August 2009, an opportunity came up around Hilton’s relocation from California to the US east coast. “This was a very appealing opportunity given the global nature of the company and how it was expanding,” he says.
At present, Schacknies oversees the group’s corporate treasury function, which includes 25 people in the US and the UK. The team’s primary responsibility is to manage Hilton’s global liquidity portfolio and global risk, while also supporting capital markets activity.
Perhaps counterintuitively, Schacknies says that moving into corporate treasury has given him an opportunity to understand how the rest of the organisation works. “Although I have always worked in a treasury role I spend most of my time dealing with issues outside of treasury,” he explains. “This is what is most fascinating. It is about how treasury issues pertain to the rest of the company.”
Supporting international growth
As the company has grown internationally, Schacknies says that the need to work closely with other functions has only intensified. “For instance, we now have a greater need to understand our global liquidity portfolio and the risks associated with this,” he explains. “It is about sharpening our processes and how we manage these issues both at home and overseas.”
This is not something that treasury can achieve in a silo, as it requires a restructuring of the Group’s international entities and the education of its people to foster a more currency-rational approach to liquidity management. This sees the company looking at new ways to manage its currency exposures and to naturally offset these. “To achieve this, we have partnered with other groups in finance who were already working to restructure the business for commercial reasons. We have also looked to redefine the currency plumbing,” Schacknies explains.
For this project, the company first needed to gain control and visibility over its transaction data by capturing all intercompany loans in a single system. With a single, comprehensive data-set in hand, Schacknies could then assess the earnings and cash flow characteristics of each loan in the portfolio, with input from individuals in the treasury, tax, accounting and operations finance teams.
This meant that risk could be measured in terms of notional exposure, simple factor sensitivity and probabilistic models (value-at-risk), and calibrated with historical results data.
This exercise allowed the Hilton treasury team to target any new or existing loans, and the cross-currency cash flow impact of these, for hedging under the umbrella of a new in-house bank structure. Any remaining loans were flagged for restructuring under a rationalisation plan. By routing all cash-impacting intercompany activity through an FX hedging programme, Hilton has been able to reduce FX cash flow risk to a negligible level, while better managing the cash flow and liquidity associated with these flows.
“The next step is to transition towards hedging reoccurring cash flow,” explains Schacknies. “This is because our currency mix is changing and we are no longer simply able to mitigate our currency risk by offsetting it against expenses in key locations. This will put the business in a better place as we move forward.”
Despite many great achievements – and awards – during his time at Hilton, Schacknies would still like to do more value-adding work. Yet mitigating factors mean that his team’s time often has to be spent elsewhere. Regulation, for instance, as many treasury professionals will attest, is becoming increasingly burdensome. “The regulations might be well-intended, markets need rules after all, but I do believe there is some overreach of regulation and some that are going further than was originally intended,” Schacknies says.
Know your customer (KYC), or “death by a thousand papercuts” as Schacknies describes it, is probably the most obvious example of this. “This has become an immense burden for corporate treasury departments and the banks,” he says. “It saps time – not simply because of the work involved in meeting KYC requirements, but also because of the need to explain these requirements to the business and make them understand why it takes time to open a bank account. Frankly, this adds no value to what we are doing and our time could be better spent doing other things. It has also increased the cost of doing business through indirect taxation.”
Schacknies is yet to find a solution to alleviate this burden and he sees the situation becoming more complex in the meantime. To address these challenges, Schacknies relies on honest and frank conversations with his banking partners. “We listen to their requirements and then tell them if their requests seem excessive compared to the other banks we work with,” he explains. “The hope is that we can find a middle ground that suits both parties’ requirements. It has become a dominating topic with the banks – more than both we and they would like it to be.”
Managing the data
Schacknies muses that perhaps technology can save the day and solve the KYC burden, just as it has assisted in other areas. In his view, technology has had a greater impact than anything else in the profession during his working as a treasurer. “The impact of technology has fundamentally changed how treasury achieves its goals and the skills that treasury professionals need,” he says. “Corporate treasury in the 21st century is as much about managing data as it is managing money.”
He cites his work building out treasury teams as an example of this. “To get people around the world working from a single source of truth requires a complex suite of technology – this cannot be easily achieved using spreadsheets,” he says.
But, as he is acutely aware from his experiences using technology, simply installing a new system and hoping it solves all your challenges is a foolhardy approach. “We have built a robust and effective technological architecture here at Hilton,” he explains. “This is built around our Wall Street Systems treasury management system.” But whilst this architecture has enabled Schacknies and his team to better manage the treasury department and the data that flows through it, there is no time to stand still.
For instance, as the company has transformed over recent years, its reporting needs have changed greatly. “There is now a need for us to provide not just accurate but also incredibly detailed information to the management,” he explains. “Due to this, the way we managed our data structures before, and how this informed the reports we created, has essentially become outdated and requires a significant amount of human intervention to understand and complete.”
It is there that Schacknies sees technology having its limitations and not being the panacea that some make it out to be. “Of course, any modern treasury department needs to have an advanced and sound technological architecture in place,” he says. “But what really counts is having the right people. No matter how smart the system, you need the people coming up the curve and being able to interpret the increasingly complex data that is being created – again the challenge is dealing with the pace of change.”
On the horizon
Despite the current limitations of technology – or at least the cost associated with upgrading and purchasing the latest systems – Schacknies does expect to see technology having an even greater impact on the role of treasury in the years to come. “Although the fundamental mission of treasury hasn’t changed – it still exists to manage cash and risk – the way this is done is dramatically different from when I joined the profession,” he says. “Technology has brought the profession on markedly.”
Yet there is still more that can be done. “There remain processes that require human intervention,” he says. “In these instances, we are simply acting as middleware. Removing these processes, and driving automation and straight through processing, is where we should be heading.”
“The impact of technology has fundamentally changed how treasury achieves its goals and the skills that treasury professionals need.”
Schacknies also sees the broader impact that technology in the treasury domain is having on the wider business. Indeed, given Hilton’s consumer focus, Schacknies and his team are dealing with both retail and wholesale payments. “How guests pay and engage with us financially is a critical component not just of treasury, but also of how the entire business operates – it is a big part of the guest experience,” he explains. “We are therefore very closely following innovation that is happening in this space and will adopt new solutions if they are convenient for our customers, with the caveat that they have to be secure.”
Where innovation is concerned, Schacknies believes that banks which take a holistic approach are currently performing best. “We have a great banking group,” he says. “Increasingly, in the conversations that I am having with them, discussions are now more multi-faceted and span multiple product sets. Before the recent wave of technological innovation and interconnectedness of systems, conversations were very much in silos and about one particular product. The shift to a more dynamic discussion is certainly positive.”
Schacknies is also keenly watching how the banks continue to evolve and often wonders what business lines will be altered or even cannibalised by emerging technology, both within and outside of the banks. “FX, where I began my career, has already fundamentally changed and become commoditised,” he says. “And this is true of many banking products, so it will be interesting to see how they behave in the future. We certainly live in exciting times.”
Building a legacy
What then does the future hold for Schacknies and his team at Hilton? “Once the spin-off of the real estate and timeshare businesses as independent companies is complete, the focus will be on fine-tuning the treasury engine,” he says.
Schacknies notes that the pace of change in the company has meant that the treasury has been running at full speed to date. “We want to tweak it slightly and recalibrate some components to drive further sustainability,” he says. “The aim is build a department that is sleek, efficient, intuitive and able to be inherited by future generations who join the Hilton treasury team.”
Indeed, Schacknies plans to continue building a legacy throughout his career – whether that means developing a best in class treasury architecture or putting together a world-class team. He concludes, “It is great for the team to be recognised for the work we have done with awards, but what really gives me the most satisfaction is seeing other new members taking ownership of functions, improving them and making them their own – this is when you know you have done something worthwhile.”