Subscribe
Share
Share
Embed
The Navvai Shift – AI & Business Insights
Welcome to The Navvai Shift, the podcast where business leaders in finance share their journeys, challenges, and unfiltered thoughts on artificial intelligence. We dive deep into how AI is shaping industries, uncovering real-world insights from those driving innovation.
Subscribe for expert conversations on AI, automation, and the future of business.
Welcome to another episode of the Novice
Shift. Today we're happy to have Juan
Pablo from CFX Risk Management CEO and
founder. So Han, how are you? I'm very
well. Thank you very much for having me.
Perfect. I'm much appreciated. And for
our viewers listening, please give a bit
more insight into CFX risk management
and what you guys do.
Sure. So we started the company about 10
years ago with a view to basically
providing corporate clients the same
tools that we had uh to take risk. In my
previous job I was a trader in FX
commodities for about 15 years and so we
developed most of it systematic and so
we developed a series of of tools that
allowed us to manage that risk. and
having sort of interacted with uh
different clients at the time it was
pretty clear that you know in the
corporate world they didn't have such
tools everyone was sort of based in
Excel and uh so you know there there was
a lot of value to be added that's why
CFX that's how CFX started 10 years ago
amazing and just on the topic of risk I
know unmanaged risk can erode margins
very very fast so why do you think
companies still struggle to get ahead of
these uncertainties yeah I think
sometimes people don't underestimate the
potential financial outcomes that
they're facing. Sometimes it's difficult
for them to measure them correctly and
um in many many cases as well they're
very dedicated to the day-to-day
business right and they sort of fail to
stop and look at the business from the
80th floor to see what the potential
problems might be ahead and then plan
accordingly.
So our mission really is to to help our
clients be there for the next hundred
years, right? Not being taken out by a
financial event so that when the good
years come, they can collect all the
seeds that they've been sort of growing
and when the bad years come, they can
survive on. Understood. So since we're
on the um topic of risk, I just wanted
to kind of pivot the angle to
volatility. So Juan, how would you say
current swings, commodity price shifts
and like interest rate changes hit
financial stability and profitability
for firms today? Yeah, that's a very
good point. So you know those three
things you mentioned there FX,
commodities and interest rates are
basically input into a business and
sometimes they get managed by the CEO or
the treasurer in a way sort of
disconnected from the commercial side.
Right? And that's what we found many
times is that the finance department
doesn't talk to the commercial
department and the finance department
does all the hedging. And so the
commercial department does doesn't
really know what's going. So when we
through our application software
application when we bring them together
that's where the the magic starts to
happen right because the commercial uh
department will say look you know I can
sell this product for X and if you buy
me an option to protect me against the
possible move in the FX then you know I
I can deal with that but if the FX goes
to 100 for example I'm I'm out of the
market I've got no margin can't can't
move the product and so those things are
important But those conversations don't
really happen all the time in companies.
And the other thing that uh is is sort
of common in companies is that when you
do the value at risk calculation and you
tell them there's a 2 and a half%
probability of this happening or a
1% probability of this happening, they
come back to you and say, "Well, that'll
never
happen." And they don't understand that,
you know, it will happen. And it's
happened many times in the past. most
probably we're underestimating the level
of risk they have. Um, and so when they
start to understand what what their
exposures are and the potential
financial outcomes are, that's where
they say, "Okay, I should probably look
into this because it could take me out,
right?"
No, definitely 100%. And also on the
topic of volatile markets, I know CFX
lean on digital tools for your
forecasting. I kind of want to get a bit
more insight from you how these
solutions sharpen decision making
especially in volatile markets. Yeah. So
one one of the tools that we've built
for clients is a way to sort of create
parabolas on FX rates for example.
Right. So you've got a a retailer that
imports goods into their country.
They're exposed to a foreign currency.
we can so we build a tool that they
they'll we'll take into account the
current volatility and they'll make this
prediction going forward for the next 12
months. So then on the back of that they
can calculate how much margin they they
would have at current prices and that
allows them to plan ahead and say okay I
can I can work with this amount of risk
or I need to cover some of that because
I wouldn't have any margin in the next
six months if it were to move against me
with that probability. So, it's all
about I think creating knowledge systems
so that people can make just better
decisions on the day-to-day basis.
Agreed. And I I think it's definitely
imperative like obviously your tools
give your clients a lot of insight. So,
I just wanted to get into like the
scaling of those digital tools that you
use like your advanced your CFX advanced
analytics. Obviously when you've tried
to scale those set tools, have you
currently hit any like bottlenecks maybe
with like client adoption or whether
your clients are not like tech ready?
That's an excellent point. People are
against change in general, right? So
when you come up with a new idea or a
new tool, it takes time for them to sort
of adapt their daily routine to to take
this new new tool into account. We have
to give a lot of training and we we need
to try to explain why having this new
source of information will will bring
them value, right? So people are
sometimes accustomed to spending time
gathering the data, right? But they're
not accustomed spending time doing
analysis and then strategy on top of
that analysis, right? So that's where we
try to take them and say, look, we will
do the hard work, the software will do
the hard work. As long as the data is
correct, you'll come in, the report is
there for you, and then the two hours,
three hours you spend getting all those
excels together and piecing the things,
you now can spend thinking about how
you're going to make money and how this
applies to your business. And I think
once they understand that there's value
there in terms of analysis and strategy,
the the pitch is much easier and the
conversion is much much easier. which so
I think you mentioned a very important
point which you said I think the key
thing was is their data correct and
obviously through us talking with
clients and working with clients
ourselves we've noticed that some
clients are better at handling their
data more than others so I just wanted
to ask like what's your experience been
oh dear we've seen everything our first
client was a Turkish company that made
buses in Turkey exported them
to Europe Euro to Turkish leaves their
risk and the first time we got data back
from them we like 10 different excels in
Turkish um which we had to sort of go
through and um and the quality was not
great but what I try to to tell the
clients is look if we put in rubbish
rubbish will come out right so we need
to spend time knowing that what we're
putting in in terms of data is correct
it's accurate and for you makes sense
right gives you a good gut feeling that
the business is represented properly in
that data and then we and start building
you know strategy and analysis on top of
it but it does take a long time to get
the right data and to get it clean.
Yeah. Do you do you think even this
current stage collecting that data is
still quite a manual task or have you
implemented tools to help mitigate the
manual task elements inside side of it?
uh you know you'll be amazed I billion
dollar companies are still being run on
spreadsheets not one but various right
so our mission is to try and get our
clients to leave the spreadsheet on the
side to have a proper database and
proper procedures and owners of the data
right because that that's what that's
one of the problems so the ownership is
not very clear
u and so when you have ownership and
responsibilities and expectations about
what the data should look like and the
quality then things start to
Um, as I say, you know, we're constantly
trying to bring people into the digital
world and to digitalize processes in the
in the company, which at the beginning
might be difficult, but they'll pay
dividends down the line. Yeah, 100%. And
also, I kind of wanted to pivot more
into the operational efficiencies in
risk management as well. And some people
say it is a bit of a silent profit
killer. I kind of kind of want to get
your thoughts. So with fragmented risk
processes can of course slow firms down.
How do you see these inefficiencies
eating into agility and profits?
Yeah.
So one of the things we've we've also
experienced is that you know companies
will have a budget but the budget is not
in the account of the company. It's not
sitting on the balance sheet. It's just
a projection of what they're going to
consume or produce in the future and
that you know as we said at the
beginning the inputs into that will be
FX commodities and interest rates that's
you know some some form so there's no
accountability at the end of the year
that you know we didn't make the budget
because X Y and Zed right nobody owns
that P&L so one of the things we've done
in our software is the ability to input
this the the budget and calculate all
the positions in the budget as well so
you have your balance sheet which is the
things that are accounted for, right?
But you also have the next 12 months of
what you're going to do business-wise.
Uh and and and then you start managing
that risk as well, right? So that's what
we found that once we have those tools
and knowledge systems, people can get to
the end of the year and said, you know,
we did a poor job at managing this risk
or we did a great job at managing this
risk. Once you have that, then you can
sort of build on top of it for the next
year, right? And start the learning
process and it sort of snowballs into
into a good thing. But as things are
right now, there's no ownership for that
P&L. There's no knowledge system. So
come the end of the year, yeah, we
didn't make the the budget, but we
didn't learn anything about it. Right. I
also kind of wanted to have a question
in terms of of course automation is kind
of a big part of CFX playbook. So how
does that assist in streamlining and
monitoring and reporting for your
clients?
Again, and this this goes back to, you
know, where do you want to spend the
time and where do you where do you want
to spend your resources, right? So if
the machine can do something for you,
let the machine do it, right? Then spend
the time and the money hiring people
that can do analysis and strategy.
That's where the money is, right? Um but
sometimes it's difficult to convince
clients because they've got a big labor
force with a ton of spreadsheets doing
all the crunching and data input and all
that and they see that as the normal
world, right?
when you when you sort of tell them, you
know, we're going to change this because
the machine can do a lot of that and now
we're going to spend time, you know, you
don't have to let people go. You retain
retrain them because they know the
process already into analysis and
strategy, right? Um, so it takes time,
but I think people eventually understand
that that's where the value is and
that's where they can make a difference
to their competitors,
right? I can clearly see that you've
obviously worked with a plethora of
clients. So what would you say are the
biggest inefficiencies in those clients?
The biggest
inefficiencies I think initially it's
sometimes the lack of knowledge of of
the different levers they have in their
company. Right? So uh when when you're a
trader and you sort of were spend a long
time doing trading, you you're always
looking for options, cheap options, put
it that way, right? And so sometimes in
companies people fail to to see what
their options are or those levers they
can pull, right? How do I defend my
margin? How can I improve my margin? How
do I operate in a way that I can make
decisions without being, you know, kind
of pushed into the corner, right? Um
companies get into trouble when they the
market pushes them into a corner because
they run out of margin. the FX moved or
the interest rates moved uh or
commodities moved up or down but they're
just pushed into a corner and they are
obliged to make a decision right that's
the place you don't want to be you want
to be on the other side making decisions
where you have lots of things you can
pull and move right so those are things
that I think uh people tend to
undervalue right and and don't put you
know in in front of of uh of their
management team too often um other
inefficiencies is, you know, I I think I
go back to the manual process. They just
trust their Excel sheets and and their
people and I think that money and time
could be spent doing something a lot
more productive than than what they do.
Data data is is very poor, poor quality,
not the right amount of data. Once once
you go into a company and you cross that
door, you see that there's the same
version of of the same thing 10 times
and it is difficult to know what the
real source of truth is, what the
absolute truth is. So you they have to
go through a process of of eliminating
that duplicity and and trying to to get
just one which they feel is right. I
think those those are the main main
things that we've sort of experienced in
the last 10 years. And also Joan Horn, I
know you kind of touched on it in with
the traditional companies. They're very
reliant on their mass labor force. I
know within CFX you have quite a lean
team. Has juggling those clients demands
like digitalizing treasury treasury
functions ever stretched resources thin
within your company? Yeah, I think we we
ended up stretched because of projects
and um helping our clients on a daily
basis. But our our moto here is we're
going to try and leverage technology as
much as we can, right? and the software
we build should be able to handle what
the clients are trying to do. Obviously,
sometimes you'll need to fix things and
train people and all that, but at the
end of the day, if the software is
right, then you shouldn't spend too much
money too much time having to help
clients along.
So, that's what we try to do it. That's
what we're trying to do in the next 10,
20, 30 years is is keep on developing
that side. And obviously with with
things like AI, we've been able to
become a lot more efficient in some of
the tasks that we have to do on a daily
basis, right? So um so that really helps
us in terms of uh of in terms of
projects and time from thinking about
the project to actually delivering the
project to the client. That's made us a
lot more efficient.
So I just wanted to build on obviously
you talking about AI. So I think
everyone knows now that AI and
automations are shaking things up. I
think it's a a fair statement. So how do
you see them driving proactive risk um
identification and mitigation going
forward? Obviously in an appropriate
time scale let's say the next two three
years because I guess AI is you know
rapidly changing and AI is not where it
was last year and it's changed this year
and I can only imagine it's got an
exponential growth curve. Yes. So I I
think the way we think about it, we sort
of split it into two. There's there's
tasks in our company that we carry out
for our clients that can be
probabilistic, right? And AI is
probabilistic in the sense that it's not
100% right all the time, right? And so
if if we do a cash flow forecast for one
of our clients and I could go and and
have a chat with the with the AI agent
and say, you know, what what would
happen if I change this as my
assumption? and the AI goes and does the
calculation, comes back and says, you
know, these are the effects. You don't
have to be 100% right on that, right?
There's a degree of of of error that you
can accept. There are other functions
and tasks that have to be 100% correct,
right? So, if I'm calculating my
position FX or
commodities, I can't be wrong, right? I
have to be 100% right all the time. So,
those are things that I don't think will
will be taken by AI quite soon. But I
think in terms of reporting and
interacting with the report, it's it's
very interesting, right? So what we've
experienced is that uh when we come into
to to the client for the first time,
they're working on spreadsheets and then
a graph comes out from the spreadsheet
to a PowerPoint and the PowerPoint gets
shown at the meeting, right? What we're
trying to do is forget about the
spreadsheet, forget about the
PowerPoint, open the software and you
can have the meeting using the software
live and run the reports and do all
that. Right? Yeah, if you could then
interact with a report that would be
even better. I think that's the next
step for us. How do we get our clients
to interact with a report right now
talking about reporting? I feel like
with real time risk monitoring,
monitoring feels essential now. Why do
you believe it's becoming like a
non-negotiable in today's financial
landscape?
Yeah. So it's, you know, it's so
volatile nowadays, the political
situation, the the the geopolitical
situation, the wars going on, everything
tends to move quite quickly and one
tweet will move the euro 1% or 2%. Um,
so when you're dealing with those types
of things, it's important to have proper
knowledge systems and um, if you're
exposed to any of these things, then you
you need to know how much risk you're
carrying on the day, right? So for a
client, the system will send out a value
at risk calculation every day or their
position or the hedges that they need to
do and they have to have that top of
mind just in case something happens,
they know how much risk they're running
and if it's too much and they're not
comfortable with it, they go and do
something. So um Jan, so we've done some
uh research into obviously your website
and whatnot. So we've seen that you've
uh integrated risk into your strategy at
CF and not just compliance. So what
changes do you predict for risk
management in the practice within the
next I say 1 to two years?
I think the companies that have sort of
embarked in the in the risk management
uh journey are are finding that it does
add value. Right? Sometimes you speak to
people and say ah when you know putting
that program on is too costly. Yes, but
how much does it cost you to lose the
company? Right?
and then then they say, "Oh, no, it's
probably cheaper." So,
um and and you know, I think once they
start the journey, then it it tends to
build, right? So, eventually you come in
to help just on the FX side and then
they have some quantities for you. Once
they're comfortable with the FX, then
they tell you, "Okay, can you can you do
the FX the commodities?" we built an
enterprise risk management system
because I don't think the majority would
uh mean in terms of of of the existence
of the company and so I think that's the
ultimate level right when when a client
says you know we would like to implement
an enterprise risk management system
that you know overseas HR strategy
financial risks compliance legal you
know all all the risks they have in one
place so I can know what are the
pressing pressing issues um and then
they can decide you know where where are
they going to put the resources
and that's about imple integrating well
using your resources wisely do you feel
there's any gaps that data access or
tech investments they attacking to kind
of stay ahead of these trends
I think I think it's I'm going to go to
the attitude and the and the set of
values of the company right is how How
inquisitive are they about changing the
way they do things? And that's the key
thing here. It's not that we have to
supply anything. Is is the company say
realizing, hey, you know, we've got a
gap here and there's new things out
there that can help me be better. And
being open-minded and saying we have to
change our daily ways and we're going to
bring in something to help us be better.
I think that's where the key is. There's
there's you know there's tons of offers
of you know software help consultancies
whatever but people are not open-minded
about you know doing things differently.
I think that's where the key is.
Agreed. And I feel like the reason why
people don't like to be open-minded
because obviously like compliance
regulations are always changing and
that's where I kind of wanted to bring
my next question. Obviously compliance
is always changing. And I feel like
that's the biggest headache for numerous
clients that we speak to and just on the
podcast as well. So how would you say
they are like reshaping risk management
and how are they in general I guess in
the financial industry pushing
themselves to rethink their approach?
Yeah, that's that's a good point. I
think some some people start this
journey because of compliance. They have
to do it because somebody you know told
them or the regulation says they have to
do it. And I think the key difference in
between the ones that take value out of
it and and not is once you start the
journey is that okay I have to do this
right for compliance reasons I have to
calculate this how do I then extract any
value is is there value in me you know
to manage my business and sometimes
there is right because obviously the
regulator at least in the financial side
is worried about you not being in
business right and your clients and what
will happen to your clients so if you
understand where they're coming from,
although you might not want to do it.
And there's processes that you have to
set up and and I would call those
literally, you know, how how do I comply
with the rules so that I can stay in
business. But there are also some
knowledge systems that will come out of
that process that will help me
understand my business better, right? Do
some analysis and and create strategy
around it. Yeah. So that that's I think
where if you start to combine the two of
them with an open mind then there's some
value in compliance right 100%. So like
a lot of companies have a quite a
methodology where it's very reactive
compliance and I think that can get
costly very very fast and why do you
think that's no longer just cutting it
you have to be on the ball with the
compliance that you're actually
implementing.
Yes. So you know back in my in my
trading days compliance has to be the
culture of the company. You cannot
afford not comply and you cannot afford
not to to do anything that would put you
outside of the rules and that has to be
just driven from the top because that
has to be the main value the set of
values of the company. Everything has to
be done by the book and if book says so
then that's it done. I completely agree
with you and and compliance gets you
know more difficult every time. So any
system that allows you to have the
machine do some work for you whilst you
you know spend the time or invest the
time something else I think it's it's
better. So Juan how would you say you
can weave compliance into a solid um
risk
strategy? I think they go hand in hand
right some some of the compliance is
there in order to make sure that you are
going to be there as a business right
um because you know in financial
industries because you need a you know a
regulatory capital for example right so
how how do you plan ahead in your budget
that you know if things go wrong
uh you still have that regulatory
capital to survive for example
Um so that's that's why I think
sometimes people say compliance oh I
don't want to know about just speak to
the compliance officer you know he'll
deal with it but there is value in it I
think that you know you have to
understand all this this different
facets of your business that will allow
you to keep the business for the next
hundred years as I said at the beginning
that's that's our goal right set you in
a path that you're going to be here for
the next hundred years I'm not going to
tell you you're going to make money in
all those years but in the good ones
you'll be there to capture it and if the
bad runs you'll survive it. That's the
key thing. No, I definitely do agree
with you and Han. I know you worked with
everyone from coffee producers to
transport firms. Can you share a quick
case study where CFX turned the risk
management into a profit driver?
Sure. So um we had a client in Brazil
who had um borrowed some money from the
IFC and one of the covenants in the in
the loan said that they had to have a
risk management program. This is in the
fertilizer business. So we literally set
up the whole program for them, right? Um
they obviously they were running a very
successful business but they were
looking to grow it significantly and
they just needed the tools in order to
have a better knowledge as to what their
positions were, what kind of risks they
were running in terms of FX or the price
of the commodity. Uh how to plan ahead
in terms of budget uh how to measure the
risk and and compare that risk to the to
the risk appetite of the owners. Right?
obviously comply to the covenants of the
loan they had taken. Um and so I think
we spent two years working with them to
set up the whole thing and eventually um
when everyone's trained up systems were
going we sort of left them to their own
devices and and they've actually done
very well. Um so so so that's that's
that's that was a nice experience of
helping someone from literally nothing
to set up the the whole program there.
Let me say that's um and I can imagine
obviously you must have like quite mixed
quite but it's nice to obviously have
you know those examples that you can
tell people and that's a nice success
story to have but in relation to CFX if
you can share anyway what would you say
that's one bold move that CFX is
planning to keep ahead of um the
profitability threats and just ahead of
the curve in general in 2025 CFX so what
we're trying to do now is we're going to
try and pivot from being purely service
company to a more transactional
platform. So currently our clients
subscribe to our software and they can
do all their risk management
calculations and workflow on the
platform. In a couple months time
they'll be able to trade on the platform
as well. So currently you would get a
report saying today your position is X
and we recommend that you trade such and
such. What would happen then is that the
client can upload a hedging strategy
into the application and once the
positions uh change then the orders get
routed directly to the counterparty and
executed straight away. So so that's
that's where we're changing. I see. So I
think in general what I think what I've
kind of understood from this podcast is
that you you just have like a plethora
of tools available. So I guess my
question to you is how do you get these
tools in front of you know the right
people? That's an excellent question.
I'm still trying to figure it out
completely to be honest.
Um most I I'd say that probably 60% of
the tools we've we've built is because
clients have turned around and said,
"Can you do this for us?" Right. Um,
we've got a credit module, for example,
that that a company in the UK uses to do
asset lending,
uh, which literally started from a
conversation with with a client that was
filling up a PDF and then we had done
some work for a for a debt private debt
fund and we sort of converted that into
um, credit software, right? So, we're
always keen to listen to our clients and
say, you know, what's the pressure
point? where are you spending time doing
tasks that could be automated? Uh and
our mission is to digitalize all that.
Now where where do we get our clients?
Most of them have been through word of
mouth to be honest through our network
and we get referred from one company to
another and do that. But I think we're
probably getting to the point where we
should have some sort of marketing
effort and try and try to build it more
that way.
Yeah, definitely. No, this has been a
very very insightful conversation I
believe like a little bit of a master
class navigating probability threats. So
for our viewers listening, what would be
the best way to kind of stay in touch
with CFX and get updates?
Sure. So um you know through the website
we're trying to post our blogs more
frequently through uh through LinkedIn
and um yeah if you reach out to the
LinkedIn I think that that'd be the best
uh place. happy to help anyone that's
sort of struggling on on this side and
needs a bit of clarity. We we've gone
through a few processes where I think we
can we can help them navigate all this
in an easier way. Perfect. Again, much
appreciate for your time today, Span.
It's been it's been a pleasure. Thank
you, gentlemen. Thank you for having me.
Cheers.