Outsourcing alternatives

With the use of collateral in derivatives transactions rising steadily, a variety of platforms has sprung up to enable small and medium-sized companies, hedge funds and banks to outsource their collateral management requirements. By Duncan Wood

There was blood in the water for some time prior to the collapse of Long-Term Capital Management (LTCM) in 1998. The hedge fund's main banks circled like sharks, with the result that the normally routine practice of collateral management suddenly became a critical activity. Margin calls were coming in thick and fast. More often than not, the banks would call for more collateral than they were entitled to – and LTCM's collateral managers had the unenviable task of ensuring the banks didn't bleed