Flush with cash, treasurers are turning to outside firms to oversee some of the money.

Author: Gordon Platt, Pirkko Juntunen, Tom Leander



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With company balance sheets bulging with cash, a growing number of corporates are considering different ways to manage the excess liquidity. Certainly, banks are growing reluctant to accept sizable, non-operating cash deposits. The funds could be suddenly withdrawn. Moreover, the deposits require financial institutions to hold higher capital reserves to meet regulatory requirements.

Asset managers, however, are happy to help corporate treasurers put the money to use. The outside advisers are working with clients to identify and manage suitable investments—often, low-risk, liquid products with acceptable yields. Treasurers say finding those kinds of investments is typically their biggest investment challenge.

Commercial paper and money market funds are the traditional vehicles for parking corporate cash while generating yield, albeit a small amount. And some companies are putting capital into short-term bond funds (including exchange-traded funds), which generate greater returns. Corporate investments in all these vehicles could grow over time, treasurers say.

Asset managers, however, are developing new products to attract corporate cash. One example: Separately managed accounts that strictly follow corporate investment guidelines for liquid assets. Those policies generally restrict investments to fixed-income securities with high credit ratings and low risk profiles. Consultants, though, say company investment committees are more willing these days to rejigger the rules to include a wider range of assets—such as real estate and commodities—and active investment strategies.

Meanwhile, treasurers continue to hone their investment skills, putting them in a better position to manage an array of instruments, according to the fourth annual Corporate Cash Investment Report, by Sungard, a seller of asset-management software. Indeed, treasury workstations will soon need to incorporate multi-asset electronic dealing portals, Sungard claims. Some workstations already have such capabilities.

There are some concerns, however, about this new wave of corporate investing. The International Monetary Fund warns that investing in mutual funds, as opposed to direct investing, can increase the likelihood of distressed asset sales if a financial crisis hits. Even simple investments such as mutual funds can pose financial stability risks, and regulators need to know more about them through hands-on supervision, the IMF says. The asset-management industry manages more than $75 trillion of assets globally, exceeding 100% of world GDP.

Still, the shift to a less-conservative use of corporate cash isn’t likely to end anytime soon. Treasurers are getting better and better at forecasting cash flows. As such, they are becoming more willing to direct a portion of their reserves into longer-term instruments that offer higher yields—yet meet company guidelines. To do so, treasurers are increasingly turning to outside managers to select and oversee investments that tick all the boxes.

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