For hedge funds, asset managers, and corporates with uncollateralised or partially collateralised derivatives, substantial latent value is often embedded in how counterparty credit risk, margin, and collateral are managed across dealer relationships. This value is typically invisible at the trade level. A centralised XVA Hub makes it explicit by managing exposures holistically across counterparties rather than trade by trade.

CVA optimisation (“CVA mining”) arises because each dealer prices and reserves credit risk independently, based on its own exposure profile and internal models. Buy-side participants, however, frequently hold offsetting exposures across multiple dealers. When viewed in aggregate, these exposures can be rebalanced—by reallocating risk or restructuring trades—to reduce total CVA charges and associated funding costs, without altering the underlying economic risk.

While Initial Margin (IM) is typically calculated using regulatory or CCP models rather than dealer discretion, meaningful optimisation still exists under the Non-Cleared Margin Rules (NCMR). The $50 million IM threshold applies per counterparty group, not across the portfolio. Concentrating exposure with a small number of dealers therefore leads to structurally higher IM. Redistributing trades across multiple counterparties can materially reduce total margin posted. At a 5% funding cost, spreading exposure evenly across five dealers can save approximately $12.5 million per annum (5 × $50 million × 5%).

Beyond margin quantum, collateral optimisation provides an additional and often underappreciated source of value. Margin agreements typically permit a range of eligible collateral, each subject to haircuts and opportunity costs. Actively managing Cheapest-to-Deliver (CTD) collateral—i.e. selecting the asset with the lowest true economic cost after haircuts, funding, and optionality—can materially reduce the effective cost of margining, even when headline IM levels are unchanged.

Further gains can be achieved by transforming cleared exposures into bilateral structures, for example via swaptions that replicate the delta of cleared swaps. These structures allow negotiated margin terms and collateral offsets, reducing IM intensity and, in some cases, creating effective balance-sheet funding benefits.

Several large hedge funds now operate centralised XVA and collateral hubs to manage CVA, IM, funding, and collateral efficiency across all dealer relationships. For smaller or less systemically connected institutions, adopting a similar framework can deliver recurring savings while providing materially improved transparency over balance-sheet usage, funding consumption, and counterparty economics.