With interest rates bottoming and the market jittery, treasurers are seeking more unconventional and versatile means for managing stockpiled war chests of liquidity.

Author: Karen Kroll

Treasurers face myriad challenges when it comes to managing their organizations’ liquidity. Even though markets are now awash with cheap liquidity as the economic crisis of 2007–2008 recedes, economic uncertainty still lingers across many corners of the globe. And as companies conduct more business cross-border, they are increasingly vulnerable to market instability.

One example is the slowing of economic growth in China. Although the country’s GDP grew by a more than respectable 7.3% in 2014, that was down from 10.6% in 2010, according to World Bank figures.

Or consider the Middle East. Although the flood of refugees into Europe from Syria is foremost a humanitarian crisis, it is also likely to have an economic impact, says Craig Martin, executive director of the Corporate Treasurers Council with the Association for Financial Professionals (AFP). “A lot of resources will have to come to bear on this problem,” he says, adding, “it will have an impact we’re not forecasting.”

Low interest rates—as of early October the European Central Bank’s deposit rate was -0.20%—  makes earning a decent return on excess cash next to impossible. Increasing regulations add complexity to an already complicated function. For instance, regulations in Europe make it difficult to manage liquidity across the continent, as many banks are withdrawing the scope of both their product and geographic reach, says Magnus Lind, chair and founder of Treasury Peer, a global organization for corporate treasurers. One of the most notable examples was the decision by RBS early in 2015 to cut its geographic footprint outside the British Isles.


Lind, Treasury Peer: Regulations in Europe make it hard to find continentwide solutions from one bank.

Treasurers are taking action to address these challenges. First, they continue to stockpile cash. Between 2000 and 2015, corporate cash levels in the UK have risen by approximately 170%, according to Treasury Strategies. “As these hits have been coming in the last seven or eight years, we’ve seen corporate cash levels remain high,” says Kevin Ruiz, principal with the consultancy Treasury Strategies.

Treasurers continue to focus on safety and liquidity. “We’re not investing in anything except highly liquid money market investments,” says Mark Eisele, vice president, CFO and treasurer with Applied Industrial Technologies, a US-based distributor of industrial products. The emphasis on liquidity along with safety is key, given Applied Industrial’s acquisition activity. The company made at least four acquisitions in fiscal 2015, and considers acquisitions an integral part of its growth strategy, according to its 2015 annual report. As the company builds cash, it can use it for acquisitions, Eisele says.

Moreover, although interest rates remain low, attempting to capture a few extra basis points by taking on riskier investments generally isn’t worth it, Eisele says. “The level of risk you add dwarfs what you can get in return.”

Eisele isn’t alone in his thinking. “The trend remains for certainty over yield,” says Stephen Baseby, associate policy and technical director with the London-based Association of Corporate Treasurers. Indeed, principal safety remains the top objective when treasurers invest corporate cash, according to the 2015 AFP Liquidity Survey.


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