What Is A Covenant?
Covenants are rules that are set for each client using any of the EQ Riskfactor measures. For example, a commonly used covenant could be that a client’s net dilution does not rise above 5%. This means that if the dilution remains under 5%, the covenant is honoured, but if it goes above this, it is breached. Covenants can be displayed in any grid using red and green covenant indicator flags, to quickly alert you to any breaches.
Recent Covenant Enhancements
From version 4.14 onwards, EQ Riskfactor automatically generates a ‘Follow Up’ to alert you to the fact that a client has breached a particular covenant. This saves you valuable time and is faster than looking through the system’s grids or reports.
4.14 also introduced the option for covenants to trigger at month end only, as opposed to previously, triggering at any time. This is useful when a covenant tracks a target DSO (Days Sale Outstanding) within a legal agreement, as this must be adhered to at the end of each month-end period.
How To Set Up A Covenant
If using the ‘Client Summary (Full)’ grid you can simply click on an existing covenant flag, or the + icon if there is not one already, to bring up the Covenant tab. Alternatively go through the ‘Client entity properties’ window and select covenants from the workflow toolbar.
When setting up a covenant the operator condition needs to be carefully considered. For example, if the net dilution covenant is 5% you may think the covenant should be set using the operator condition of Greater than (>) on the basis that you want to know if dilution is more than 5%. However, the opposite is true. The covenant should be set using Less than (<) meaning it is only breached if dilution exceeds 5%.
There can be times when blanket covenants are needed to monitor multiple or even all clients in a Portfolio. The ‘Covenant Wizard’ has been created to enable you to do this effortlessly. The covenant wizard is found under the ‘Tools’ tab on the blue bar at the top of the screen. Once in the wizard, you can choose whether to add, merge, or even delete covenants as required and then choose the clients it should apply to. Note that the clients listed within the wizard will match those that are in the portfolio that is currently being viewed.