Monitoring & Valuation
Ongoing monitoring of derivative transactions is both essential for optimal performance and required for proper accounting. It is prudent to verify periodic cash flows and fair market value, not only to eliminate errors, but to be aware of opportunities that may exist in the marketplace. Hedging is a dynamic process, in which changes in the market environment and risk tolerance create the opportunity to adjust and maximize the effectiveness of the hedge portfolio. Proper accounting also requires oversight as the Financial Accounting Standards Board (“FASB”) and the Governmental Accounting Standards Board (“GASB”) require entities using derivative instruments to report the fair market value of these instruments periodically. The accounting treatment of the derivative contract may be a function of its effectiveness in hedging the underlying debt instrument. Measurement of effectiveness can often be complicated and time consuming.
At Kensington Capital Advisors, client support extends beyond the structuring and execution of derivative products and includes the ability to monitor derivative positions online. Using state of the art technology and independent market data, Kensington Capital Advisors can provide a wealth of information in a secure environment. Online capabilities include the following:
- End of Day market values for all positions
- Tracking of index resets and accruals
- Identification of mismatch between hedge index and bond reset*
- FAS133 effectiveness testing
- Online storage of trade documents and educational material