• Home
  • About Us
  • Contact
  • Your Account
  • Subscribe
Tuesday, July 5, 2022
  • Login
Alternatives Watch
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
No Result
View All Result
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard
No Result
View All Result
Alternatives Watch
No Result
View All Result

Setting a new benchmark for change

Christopher BloechlebyChristopher Bloechle
March 29, 2021
in Hedge Funds, Service Provider News
Setting a new benchmark for change

By twenty20photos

ShareTweetShareSendSend

Come the end of 2021, LIBOR (London Interbank Offered Rate), the leading benchmark used to calculate interest on $350 trillion plus of financial products, will be replaced with an alternative risk-free rate known as SONIA (Sterling Overnight Interbank Average) in the U.K.

Other markets are also following suit by transitioning away from LIBOR including the U.S. (shifting to Secured Overnight Financing Rate); Japan (Tokyo Overnight Average Rate), the European Union (Euro-Short Term Rate) and Switzerland (Swiss Average Rate Overnight). This changeover to risk-free rates will impact any investor transacting in debt instruments such as bonds, securitizations, corporate loans and syndicated loans. It will also affect financial institutions trading derivatives.

As a result, the LIBOR reforms will be felt extensively across the financial services industry, including at fund managers.  

Digesting the impact on investments 

LIBOR reform will have a dramatic impact on asset managers’ investments and hedging activities. As a number of financial instruments use LIBOR as a reference rate, the transition to risk free rates could have a material impact on asset managers’ performance and risk management. Over the last 12-18 months, asset managers have been going through their portfolios and carefully identifying any underlying exposures they may have which are tied to LIBOR.

As nobody ever imagined LIBOR would become redundant, many organizations have been busily repapering their legacy derivative and bond contracts. The derivatives industry has made excellent progress on developing fallback language for new and legacy contracts. In January 2021, the International Swaps and Derivatives Association (ISDA) language on IBOR fallbacks went live. This will apply as the standard arrangement in all new ISDA interest rate derivatives referencing LIBOR, and will take effect in all outstanding covered ISDA contracts where both counterparties to the transaction have signed the ISDA protocol. This means the contracts will convert from LIBOR to a fallback rate based on a chosen risk-free rate, according to the FCA. 

In the case of repapering legacy bonds, the situation is more complicated for asset managers. According to the International Capital Market Association (ICMA), the value of outstanding legacy bonds referencing LIBOR — which are due to mature beyond 2021 — totals $864 billion. Of this, 80% are denominated in USD and 9% in GBP Sterling. So why is it so difficult to repaper bonds? Under English common law, amendments to interest rate terms on bond contracts requires consent from at least 75% of the holders of the outstanding principal amount of the bonds. This is a high threshold, so revising legacy contracts will take time.

Additionally, unlike a derivative transaction where there are two counterparties to a trade, bonds have multiple subscribers meaning it will be harder to reach consensus. However, repapering is something fund managers need to be prioritizing.  

Get ready for risk-free rates 

Regulators, including the UK Financial Conduct Authority (FCA) have made it clear that they expect asset managers to be using the new rates by the end of this calendar year, despite all of the disruption being caused by COVID-19. Repapering of legacy contracts will be vital in ensuring compliance with this new regulatory requirement.    

Further on March 3, 2021, the Securities and Exchange Commission’s Division of Examinations announced its 2021 examination priorities, indicating the Division will continue to engage with registrants thorough examinations to assess their understanding of any exposure to LIBOR, their preparations for the expected discontinuation of LIBOR and the transition to an alternative reference rate, in connection with registrants’ own financial matters and those of their clients and customers.   

With the reality settling in that LIBOR, reforms will have an extensive impact across the financial services industry; fund managers need to be prepared. Portfolio BI is here to help.   

ShareTweetShareSendSend
Previous Post

New Mexico re-ups PE commitments

Next Post

Cerberus attracts $2.8bn in latest real estate strategy

Related Posts

AW Top 10 reads for June
Hedge Funds

AW Top 10 reads for June

INPRS presses on with alts pacing plan
Hedge Funds

INPRS presses on with alts pacing plan

The pricing power of today’s tech-enabled investment office
Hedge Funds

The pricing power of today’s tech-enabled investment office

Franklin Templeton taps alts consultant
Hedge Funds

Franklin Templeton taps alts consultant

Michigan funnels $2bn-plus in Q1 alts investments
Hedge Funds

Michigan funnels $2bn-plus in Q1 alts investments

Next Post
Cerberus attracts $2.8bn in latest real estate strategy

Cerberus attracts $2.8bn in latest real estate strategy

Log In

Lost your password?

Recent

AW Top 10 reads for June

AW Top 10 reads for June

AW Deal Watch: Technology solutions shine with mega-sized take privates

AW Deal Watch: Technology solutions shine with mega-sized take privates

INPRS presses on with alts pacing plan

INPRS presses on with alts pacing plan

Search the AW Archives

No Result
View All Result

Download

Alternatives Watch

© 2019-2022, All Rights Reserved  |  BMV Digital

Navigate Site

  • Hedge Funds
  • Private Equity
  • Private Credit
  • RE/Infrastructure
  • Investor News
  • Research

Follow Us

No Result
View All Result
  • Hedge Funds
    • Manager News
    • Mandates
    • Service Provider News
    • CTAs/Managed Futures
  • Private Equity
    • Manager News
    • Mandates
    • Service Provider News
  • Private Credit
    • Manager News
    • Mandates
    • Service Provider News
  • RE/Infrastructure
    • Manager News
    • Mandates
    • Service Provider News
  • Investor News
    • Endowments and Foundations
    • ESG
    • Pensions
    • Platforms
    • Consultants
  • Research
    • Investor Scorecard
    • Manager Scorecard

© 2019-2022, All Rights Reserved  |  BMV Digital

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Be an alts insider

Start your days in the know with our free newsletter

No, I don't want to be an alts insider

Thank

You!

Follow us
on LinkedIn

Cookie Consent
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Do not sell my personal information.
Cookie Settings Accept
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
Save & Accept
Powered by CookieYes Logo