A Treasurer's Imperative: Maximizing Return on Short-Term Investments

CFOs are stashing cash at a record rate. According to Investment Company Institute figures issued in mid-July, US corporations held nearly $1.1 trillion in institutional money fund assets. Billions more in repatriated assets are also entering company coffers through the American Jobs Creation Act of 2004. And with uncertainty in the markets and caution among CFOs, balances are likely to stay high for awhile and cash will continue to be king in Corporate America.

But not all cash investments are created equal. Yields on institutional money funds, for example, vary widely and corporate treasurers face significant opportunity costs if they are not monitoring investments and maximizing return. Consider this example based on numbers from iMoneyNet, a leading provider of money fund data:

From July 2002 To June 2005, the average first tier institutional money fund earned 1.25 per cent*, whereas the top 10 performing money market funds yielded an average of 1.57 per cent. Of the $618bn in first tier institutional assets, only $57bn was invested in the top 10 performing money funds during that time period. As a result, roughly $5.3bn in potential interest was lost due to companies not taking advantage of higher yielding funds.

So how can CFOs maximize the return on their cash? A growing number are turning to institutional money market fund portals to invest their cash in high-yielding money funds. Like the mutual fund supermarkets that revolutionized the equity fund industry in the mid-80s, the advent of money market portals provides CFOs with a choice of competitive funds and a convenient, single-source platform for managing them. By having access to competing money market funds, company treasury officers can easily switch in and out of funds in order to gain access to the highest yielding funds.

While exact numbers of customers using money fund portals is not available, their ranks are growing. According to a recent article in CFO.com, portals provide treasurers with access to an array of online trading tools, as well as “access to current portfolio holdings performance, prospectuses, wire information, fund applications, and more without leaving the centralized Web site. Further, portals provide a neat paper trail for managers who are required to comply with the internal-controls documentation provisions of Section 404 of the Sarbanes-Oxley Act.”

Here is brief look at six reasons to consider integrating a money fund portal into treasury operations:

1) Time Savings/Speed of Execution
The old chestnut, ‘time is money’ describes succinctly one of the main reasons treasury officers are plugging into portals. For Stella Musso, a treasury officer at LSI Logic, the time saving benefits were obvious. The prospect of cutting trading time by more than 90 per cent and eliminating the blizzard of phone calls, faxes and paperwork she had to process on a daily basis drew her to the MoneyMarket Trader Web portal.

LSI, a leading semiconductor designer in Milpitas, Calif., has strict investment criteria and diversification rules that require Musso to research, monitor and trade a number of different money funds each day. Before using the portal technology, she would typically spend more than an hour every morning processing paper – faxing a plethora of purchase and redemption orders to separate fund companies, and placing wire transactions to fund new purchases. Additional time was spent doing the research and monitoring of her accounts.

With the portal, she now logs on, and between sips of coffee, she checks her money fund investments, compares yields on other funds, and selects funds that offer the highest daily rates. All told, she completes her daily investments in about five minutes. “It’s a click of a button for us, and that saves me time,” said Musso. “That way, I can focus more time and energy on other responsibilities.”

2) One-Stop Shop
For Bob DiAntonio, Investment Analyst for Arbella Insurance Group, an insurance provider in the New England region, using a money fund portal is akin to shopping at a Walmart. Portal technology puts everything – research, trading and monitoring of funds – under one roof. With a single platform, one log-on and access to all of the tools and information he needs to manage his money fund holdings, DiAntonio likes the combination of having access to a range of quality investments with the convenience of making those investments from a single, centralized source.

“The portal helps me research, trade and monitor my money fund accounts with effectiveness and ease,” said DiAntonio. “It puts the whole nine yards at my fingertips, and that makes our treasury operations much more effective and efficient.”

3) Simplification/vendor consolidation
Portals offer another benefit, says DiAntonio. With the MoneyMarket Trader, which uses an omnibus model for clearing and settling trades, DiAntonio fills out a single application that provides him with access to all 35 funds on the platform. “Before, if we wanted to add a fund to our portfolio, we would have to contact the fund company and then run it through our legal and finance for due diligence,” he said. With the single application, “we can put our money to work more quickly.”

4) Cost Savings
Treasury officers can reap cost benefits in three ways. By consolidating all trading activity into a single wire transfer, users of portals eliminate the daily barrage of multiple wires, thereby saving the $10-$20 charge per wire. The time savings aspect of portals also translates into administrative cost savings. By reducing the time spent on faxing, wiring and phoning associated with processing trades, corporate treasurers now have extra time to concentrate on more strategic matters and higher-value work. Finally, portal users can positively impact the lost opportunity associated with being in a low-yielding fund.

5) Investment Transparency
Portals also provide direct and transparent access to a variety of fund information, which treasurers say helps them identify the right investments at the right time, enabling them to optimize money fund investments. The comprehensive and consolidated institutional money market fund research data provided on many portals allows treasurers to isolate key industry data and streamline analysis of leading institutional money market funds at a glance.

For example, portal research tools allow treasury managers to customize data based on investment need and reliable, independent assessments from the industry’s most respected rating agencies. They can also be used to monitor assets under management and average weighted maturity of funds on watch lists; compare expense ratios of specific institutional money funds; and filter for key investment criteria.

This customized research capability appealed to Arbella’s DiAntonio. Since Arbella is an insurance group, DiAntonio can only invest in funds that have been approved by the National Association of Insurance Commissioners. “I can filter funds so that I can compare NAIC-approved funds only,” he said. “The site gives you the right information to help do the due diligence necessary.

Added Musso: “Having all of the information online and in one place makes it easier to do the research we need to do to make effective investing decisions. It’s much more of an apples to apples comparison.”

6) Sarbanes Oxley Compliance
With its strict controls over financial reporting, Section 404 of Sarbanes Oxley (SOX) raises the bar on treasury operations, according to Robert T. Mayer, director of treasury risk management at Protiviti, Inc., an international provider of independent internal audit and business and technology risk consulting services.

“In our analysis, we see numerous issues faced by firms seeking to comply with Sarbanes – from outdated or limited policies and procedures, to a lack of acceptable controls and risk identification, to heavy use and reliance on manual data and spreadsheets,” said Mayer. “All of this supports the need to strengthen controls, enhance processes and to manage costs.”

Portals can help companies meet several SOX requirements for the treasury risk function. With limited access and a single password, portals provide a centralized, secure process for treasury functions. Because it is highly automated, a portal can also help maintain formal and current treasury policies, procedures and authorization matrixes and enhance process effectiveness and control. And portals provide a clean paper trail.

“We have been able to streamline reporting down to one statement for all of the transactions we make in all of the funds we buy and sell,” said Musso. “It’s a great audit trail for us. Our internal auditors have had no issues and that’s always a good sign.”