Hazeltree partners with adviser Lionpoint to drive PE cash management automation

New York-based treasury specialist Hazeltree has joined with Lionpoint, a global consulting firm, to help drive the digital transformation of cashflow between private equity firms and their banks.

Hazeltree has spent the better part of three years helping major PE firms improve speed and efficiency by digitizing the cash management process. Its sole focus has been on hedge funds and alternative assets like PE. “Our system has been built by PE firms for PE firms,” Sameer Shalaby, CEO of Hazeltree, told Private Funds CFO. “It’s very specific and solves problems that corporate treasury systems don’t even know exist.”

Cash drag remains a major obstacle for PE firms wishing to gain the highest possible returns for investors. Cashflow forecasting has become increasingly important for knowing when to draw on credit lines, scheduling for capital calls and handling investment and distributions, said Shalaby.

Small- to mid-size firms struggle with manual systems drawing information from bank portals and putting the data onto excel spreadsheets. “The paper systems tend to be prone to error, inefficient and lacking in controls,” Shalaby said. “This became particularly evident during covid as managers tried to get the normal approvals needed to move money.”

PE firms often invest through a cascade of transactions, moving the money through dozens of corporations before arriving at the ultimate investment. When money gets distributed up through the network, it also must move through the same chain in reverse. This patterning creates real problems for manual record keepers. “Cascading payments is an attribute of how PE firms invest,” said Shalaby. “We can handle it so they don’t have to worry about it.”

Managing credit lines can be equally cumbersome, requiring correspondence that takes days or weeks, he added. Many banks themselves operate credit lines manually, offering clients only monthly statements. The delay in response can make closely monitoring interest payments, loan agreements, drawdowns and even interest charges especially difficult, he noted.

The banks are beginning to come around to digitizing their own internal processes, but slowly. “The banks vary from a technology perspective. Some are better. Some are worse,” Shalaby said.

That’s where a consultant like Lionpoint comes in, helping the banks and the client see the value of digitization. “They can act as an independent adviser giving a more objective point of view as to why this is important,” Shalaby noted.

The big PE firms, with multiple banking relationships and complex structures, see the need for digitizing cash management; not so the smaller firms. “The $100 billion firm sees the need,” Shalaby explained. “The $1 billion firm doesn’t yet get it. They say, ‘Why should I care about this?’”

Hazeltree offers treasury management services from the cloud for hedge funds, private markets, asset managers, fund administrators and pension funds. It specializes in streamlining operations to reduce liquidity and funding risks to enhance performance.

Hazeltree’s integrated treasury management service covers cash management, securities finance, as well as counterparty, collateral and margin management.

Lionpoint consults for alternative investments and financial service firms, spanning the front, middle, and back offices. Core specialties include strategy, operational optimization, technological road mapping and systems integration.

“The industry itself isn’t yet fully understanding of the treasury requirements or what we call ‘the art of what’s possible,’” Shalaby said. “We believe it’s going to evolve” to a greater understanding and efficiency.