Global best-practice hedging & risk management solutions should always minimize market risk and reduce potential loss and should never add to a company’s overall risk profile.
Most entities can design and implement an average-performing hedge solution - the difficulty, which takes skill, is providing one that is cost-effective.
Our philosophy of Dynamic Hedging (vs Static Hedging), which centers around our core objective of "70% Protection and 70% Participation", is combined with our strategic blending of various structuring and execution approaches to ensure we always deliver a cost-effective hedging solution.
Simple ’Vanilla’ at-the-money FX & Commodity Options provide complete protection. However, they are costly, with option premiums as high as 15-20% for 12 months of exposure protection.
ADIG’s Dynamic Hedging Programme is not an outsourced solution, it is a fully integrated, immersive, end-to-end hedge programme.
We commence each program with bespoke workshops, which analyze hedge structure design and specific entity solutions. An agreed Master Hedge Policy is developed, and the final solution is run live in accordance with internal control systems, authorization processes, 24/7 market monitoring and execution, reconciliation, plus daily & weekly reporting.
In addition, depending on the amount and sophistication of the exposure managed, ADIG portfolio managers and analysts will spend significant time onshore operating the Dynamic Hedge Programme. There are no other risk management firms like ADIG.
As an independent agent representing the client, we are not limited to working with one financial institution - We price across multiple banks and liquidity venues, to always ensure best execution and pricing, resulting in significant savings.
Disciplined Hedging Setup Process
The Dynamic Hedge Programme would require between 90-120 days to fully setup and implement.
Typically working with the client’s Treasury Team, we discern their current exposure and Business/Operational attributes. We analyze the key drivers of P&L, seasonal effects on cash flow, assets and revenues, cash deployment schedule, time horizons, market volatility, and underlying liquidity.
2- Hedge Programme Policy Approval:
We craft a policy document that operates as the mandate of the Dynamic Hedging Programme. This document is submitted to the client’s Board for approval before we implement the Hedge Programme. Our process ensures the client has complete control of your programme.
3- 24/7 Risk Monitoring:
Every Dynamic Hedging Programme is Risk Monitored 24/7 to mitigate the unpriced currency or market risk. Our Head of Operations & Compliance monitors all adjustments to the Hedging Programme to ensure that client mandate parameters are always maintained and followed.
4- Instrument & Strategy Analysis
Once we understand the Business/Operation and its key drivers, we determine the blended set of financial instruments that will create an effective Hedging Programme against the specific risk exposure. Our ADI strategies include the use of Swaps, Futures, Forwards, Currency and Commodity Options.
5- Counterparty Lines:
We help set up third-party Hedge Trading & Execution accounts on the client’s behalf with a range of reputable global financial institutions (including Macquarie Bank, JPM, Goldman Sachs, BNP Paribas, Citi, HSBC, ANZ, LMAX).
ADIG Dynamic Strategy
(24 / 7) Monitoring :
ADIG’s Dynamic Hedging Programme is not a static solution - it is a highly dynamic structure which requires 24/7 risk monitoring and execution, weekly tuning of hedge ratios, tactical instrument selection, as well as front and back loading of various hedge structures.
A minimum hedge ratio for a rolling 12 months of cover is generally set at 50%.
The duration can be extended depending on the client’s appetite and tolerance for mark-to-market losses and credit availability from banking counterparties.
Daily Stress Testing:
All critical components are discussed, analyzed, scenario and stress tested, and ultimately formalized as in the Master Hedge Policy.
This agreed-upon policy becomes the official mandate of the joint Dynamic Hedging Programme.
The Hedge-Book is scenario and stress tested daily to ensure the live structure is within an acceptable range from our target 70%/70% Protection & Participation objective.
Tactical Decision Making
The joint ADIG & client Execution Team monitors, executes, and manages risk on a 24/7 basis, which covers the entire global trading cycle.
The joint client & ADIG Risk Management Committee meets weekly to make decisions and authorize the execution of future hedges, the optimal hedge ratio, instrument selection, option strike levels, and all other variables.
The following is an example of the types of data and events the Joint Execution Team considers daily:
Global markets news flow.
Macro data releases.
Central Bank policies.
Major geopolitical developments.
Supply & demand news & developments.
Potential adjustments to the 12-month rolling hedge ratio.
Execution tactics with counterparties – flow volume, lines, benches, strategy and best-execution.
Day to Day Operations
The ADIG/Client Joint Risk Management Committee meets weekly and is responsible for the overall Hedge Programme operations. The committee makes decisions on hedge ratios, instrument use, blending structures, transaction limit levels, premium spend, and any potential upcoming issues.
The ADIG/Client Internal Audit & Risk Assurance Team is essential to the long-term governance of the client’s Hedging Programme. It also serves the critical function of compliance by independently monitoring all execution and reporting, including all mark-to-market gains and losses.
The Joint Execution Team executes hedge transactions. As the day-to-day operators of the programme the team monitors markets 24/7, reports on performance, analyzes margins and collateral requirements, controls financial institution limits, monitors cash flow implications and has discretion on any other relevant tasks associated with successfully operating the programme. It maintains an on-going register of all hedges, status reports, plus maintains real-time updates of the hedge-book, including total exposure.
The Execution Team performs stress testing, scenario analysis and projected cash flows in various situations. Analysis is presented to the joint ADIG/Client Risk Management Committee weekly, and at the client’s board meetings on a monthly basis. Authorized Client Execution Team members are present during live executions, via phone calls or Bloomberg Chat (IB Chat). All recorded voice logs and IB Chats are filed for future audits.