Internal and technological challenges were cited as one of the main barriers to corporate treasurers adopting cash flow at risk (CFaR) hedging policies, according to a new survey from Bloomberg.
More than 100 corporate treasurers, financial analysts and risk managers responded to the poll, which Bloomberg says found that CFaR and earnings at risk (EaR) have gained recognition as the latest risk management solution
The results of the survey show that 34% of respondents already use CFaR or value at risk (VAR), 29% are considering using it, and only 8% have never heard of it. Itl also revealed that 64% of respondents said they need to improve or are considering improvements to their company’s current hedging policy.
However, when asked what obstacles stood in the way of adopting a CFaR-based hedging policy, 66% of respondents cited the difficulties of explaining the policy internally and to the board. In addition, 41% of respondents cited that their company is reluctant to change its current technology.
“For cash flow and earnings volatility, companies are shifting away from the outdated percentage hedging model to a risk management perspective, as they are not able to tie their old strategies to the key performance indicators the board is demanding,” says Mark Lewis, corporate treasury product manager at Bloomberg.
Explaining the policy internally and updating technology were not the only challenges respondents cited in implementing CFaR & EaR. In total, 29% of respondents were also concerned that such a policy would be too complex, 26% that it could be too costly to implement and run and 13% that it would not provide sufficient benefit.