Sector

Sovereign treasuries, central banks, development banks, and sovereign wealth funds require a variety of complex risk management solutions. We build long term client relationships through a deep understanding of their strategic objectives and constraints.

Solutions for Sovereign entities include:

Debt portfolio structure optimisation

Our approach and techniques to determine the optimum fixed, floating, inflation-linked, maturity and currency structure of debt are based on proprietary long term financial simulation models which we developed over many years of experience in advising sovereigns, public utilities, and multi-national corporate debt managers around the world. TradeRisks uses Monte Carlo simulation of projected export revenues and long term debt cashflows, and tests alternative debt hedging strategies. The results are typically presented in the context of clients’ long term budget compositions and strategic plan in terms of the likelihood that financial targets fall below critical levels.

Optimum asset mix

At the strategic level, the TradeRisks team has experience in working with central banks, development banks and sovereign wealth funds on the theoretical and practical aspects of implementing liability-driven benchmarks. Our liability-driven benchmark analysis approach relies on the evaluation of risk-return trade-offs of alternative strategies relative to the liability stream that funds them, where the risk is defined for multiple periods and captures the uncertainty in re-investment rates. Using these models, we are able to select investment strategies in a manner that takes into account the behaviour of market price and credit spread correlations in both stable and non-stable or extreme market conditions, i.e. combining event risk with statistical risk measures.

Development of domestic debt and derivative markets

We provide strategic advice in relation to appropriate measures aimed at increasing liquidity and transparency, through the development of government bond markets (including inflation linked issuance), bond exchanges, benchmark issues, and buyback operations. We also provide assistance for the development of domestic futures, interest rate swaps and forward FX markets. TradeRisks’ teams also provide capital markets advisory services in relation to government debt issuance, associated risk management, and financial markets intelligence.

Development of credit scoring models for government funded enterprises

  • TradeRisks designs and develops financial and credit scoring models for the analysis and management of liabilities of sovereign institutions to assist these clients in understanding their credit risk exposures to private sector corporates and institutions, both domestically and overseas.
  • We have assisted state treasuries with the credit modelling of financial institutions and corporates which have outstanding treasury guarantees, borrowings, and receivables due to the treasury. We have also advised ministries of finance on the management of fiscal risks and the monitoring of contingent liabilities associated with state lending and investment in infrastructure and Public-Private Partnerships ('PPP').
  • Our approach entails the risk modelling of both the idiosyncratic credit risk of individual state counterparties, and the econometric modelling of market factors impacting these credit exposures, such as exposure arising from foreign currency mismatches on counterparty balance sheets.