We mentioned SunGard's recent "Cash Management Study" in a "Link of the Day" last week. Today, we excerpt more extensively from the survey. SunGard's Study explains, "Since the financial crisis of September 2008, treasurers have increasingly recognized the importance of defining and delivering on the right investment policies. Treasurers need to find appropriate repositories for their cash and maintain access to liquidity in an environment where borrowing continues to be expensive and difficult to source. To help understand investment trends and corporate treasurers' priorities, SunGard conducted an online survey, which attracted responses from 215 corporations globally. This included respondents from all regions and industries, with over 50% of companies headquartered in the United States and significant responses from other regions such as Europe and Asia. The survey aimed to understand corporates' cash investment policies, their attitude to risk and return and consequently, their preferred cash investment instruments, both now and in the future. It also sought to explore how companies transact their investments in practice, such as using web-based portals."
The Executive Summary explains, "The current economic and regulatory challenges have resulted in a complex cash management environment for corporations globally. One element of this is the need to define and deliver on the right investment policies. Counterparty risk has become a particular priority but with a number of credit rating downgrades, and a growing awareness that no organization is 'too big to fail', companies that have developed large cash balances often struggle to find a sufficient number of counterparty banks and issuers that meet their credit requirements. The problem of finding appropriate repositories for cash is compounded by the need to maintain access to liquidity in an environment where borrowing is more difficult and expensive. Furthermore, with interest rates remaining at a historic low, treasurers and cash managers are tasked to generate a return on cash to prevent value erosion through inflation and rising prices."
SunGard continues, "This report outlines the findings from the Corporate Cash Investment Survey commissioned by SunGard in 2011. The survey explores the trends in investment strategy and policies, and how corporate treasurers fulfill their policies in practice, including their choice of cash investment instruments, how these may change in the future, and how they conduct transactions. The key findings of this report include the following: The most popular investment type among respondents are bank deposits, representing 67.9% of respondents, followed by money market funds (MMFs) used by 48.37%. Corporate investment policies remain conservative, with a significant focus on security and liquidity. Yield is a major consideration for 17% of respondents, suggesting that there is an obligation in many companies to seek the highest yield so long as investment decisions are within the company's risk and liquidity policies. Bank deposits are likely to continue to form the mainstay of corporate investment policy, with more than half (61.69%) of respondents indicating that deposits would be extremely important in the future; however this represents a drop of 6.22% from today."
The key findings also say, "Forty-eight percent (48.37%) currently use MMFs and over half (55.1%) identify them as an extremely important part of their future investment strategy, an increase of 6.73% <b:>`_. Just above 50% reported that they do not currently use MMFs , citing reasons as credit quality, access to liquidity and yield, although these factors are typically considered to be the factors in favor of using MMFs. A large proportion of respondents who use MMFs already access these via an on-line portal (37% of respondents), compared with 48.37% who use MMFs. Those who do not use a portal indicated that the lack of integration with treasury management systems and the inability to access the full range of funds through a single portal are also issues."
The report states, "Money Market Funds (MMs) are growing in importance as an investment instrument as both familiarity and availability increase. However, there are some differences in the relative degree of importance of MMFs in different regions. MMFs have the most strategic importance in the UK, followed by the United States, both of which have the longest history of MMF investment. MMFs were first introduced in the United States, and quickly taken on by investors in the UK, so there is typically greater familiarity with these instruments than in other regions. In addition, investors in the United States have long appreciated the value of a standardized investment product that 2a-7 funds offer."
It adds, "In Europe and Asia, MMFs have been introduced more recently, accounting for their lower significance historically, and in some cases, less familiarity. Furthermore, there has been some ambiguity in the definition of MMFs in the past: various types of funds with quite different risk profiles have been described as MMFs. This has now changed with standardized definitions of MMFs and short-term MMFs. This standardization is encouraging greater adoption."
SunGard explains, "Although MMFs are set to grow in importance among the corporate investment community, there are still a sizeable proportion of companies (just above 50% of respondents in this survey) that do not currently use them. However, this seems likely to change as volatile and fragile economic conditions continue to illustrate the need for a robust, diversified cash investment policy. Respondents who do not currently use MMFs were asked for their reasons. A roughly equivalent proportion of respondents expressed their concerns regarding credit quality, liquidity and yield. Among those that indicated other factors, these include lack of familiarity with MMFs. While these concerns are consistent with many companies' overall investment considerations, security (including credit quality) and liquidity are typically the benefits of using MMFs as they comprise a diversified range of high quality assets, rigorous investment policies and credit research, and same-day access to liquidity. Consequently, it seems likely that many respondents who have these concerns are largely unfamiliar with MMFs."
The study also says, "As familiarity and confidence with MMFs gradually increase, more companies are likely to take advantage of the visibility, automation and audit ability that MMF portals offer, particularly when integrated with a treasury management system for straight-through-processing. The capabilities of online MMF portals have developed considerably in recent years. Leading portals, for example, provide not only transaction capabilities, but also full visibility over fund metrics and asset allocation, and risk analysis tools for analyzing and managing both interest rate and counterparty risk. With integration opportunities increasing rapidly, and the number of funds available through some portals also growing, these concerns are likely to become less prevalent in the future."
Finally, SunGard adds, "37% of respondents indicated that they use a MMF portal: when compared to the total percentage of 48.37% respondents who use MMFs, this represents a very high proportion. Lack of familiarity with MMF portals accounts for the largest proportion of responses, while the lack of integration with treasury management systems and the inability to access the full range of funds through a single portal are also considered issues by 45%."
