The Secret Sauce for Risk Management
Recently, Energy Risk returned to London for its 21st edition, attracting over 150 senior energy risk managers and traders from across Europe. Knowing that this is an audience well educated on commodity management current threats and trends, Allegro conducted an onsite survey capturing fresh market insights specifically on the following two questions:
1. What is the biggest challenge for Risk Officers in the energy sector?
2. Which features in your ETRM solution do you most benefit from?
Today, we will break down our findings from the first question. Of the survey participants, 59% said that reporting risk accurately across multiple commodities and systems is a major challenge. Of the remaining responses, 28% claimed that responding to regulatory changes in the market is their biggest challenge, and 13% admitted that consistent and rapid performance when running real-time valuations is a challenge.
Multi-commodity portfolio management with Allegro Horizon
Multi-commodity portfolio management can be a complicated undertaking; and based on our survey results and other conversations with industry participants over the years, many businesses have yet to master accurate risk reporting across multiple commodities and commodity management systems. With multiple commodities comes not only different products, but also differences in full value chain management.
This brings us to the second most popular answer on our survey: responding to regulatory changes in the market. Regulatory pressures obviously change based on commodity, region, and the geopolitical landscape; and being prepared to meet those changes without taking hard hit on margins can be difficult. Just last week, for instance, top oil market-maker Geneva Energy Markets, LLC (GEM) responded to regulatory pressures by liquidating its trading book that previously held “millions of barrels of open interest across crude oil, refined products and natural gas,” according to managing partner Mark Vonderheide. With a notional value of $50 billion, the risk prior to the latest regulatory pressures was relatively low at $2 million. However, the latest regulatory developments forced the company to make a big change. “The change to gross exposure meant a significant increase in capital requirement for our clearing bank, and we were asked to reduce our positions massively,” said Vonderheide. This is just one sample of many companies that have had to make major changes to their businesses due to regulatory changes as of late.
Whether you are most worried about curbing risk on managing multiple commodities or are most worried about responding to regulatory pressures, it is critical to have a comprehensive enterprise ETRM software that provides real-time data and enhanced day-to-day operations management to effectively manage risk in today’s volatile market.
With Allegro’s cloud-enabled ETRM software, Allegro Horizon, businesses benefit from a solution that improves agility and allows them to do more with less. Horizon includes innovative solutions for contract management, currency and interest rates, workflow, settlement, trade execution, position management, and much more. Gone are the days of spreadsheets and multiple systems that are prone to human error and time lost in feeding a dated commodity management solution. With Horizon, customers buy software and implement solutions in the same way they do business – by function, department or desk. The end result is reduced cost and risk of deployment, combined with significant flexibility for meeting the requirements that are certain to arise in the future.
Stay tuned for the next blog post, which will cover our findings on which ETRM software features are most beneficial to risk managers. In the meantime, contact Allegro today to learn more about how we can help you better manage portfolio risk.