Treasury Leaders SummitTreasury Innovator Award finalist: TreasurySpring

Treasury Innovator Award finalist: TreasurySpring

At last week's Treasury Leaders Summit, we spoke to each of the Treasury Innovator Award finalists about their history, the thinking behind their proposition, and their plans for the future.

TreasurySpring is a financial technology company building new pipelines for short-term funding markets. Its platform for the issuance of Fixed-Term Funds (FTFs) enables sovereigns, corporations and banks seeking short-term funding to connect to firms with excess cash, through a standardised and regulated network. Since launching the platform in summer 2018, it has issued more than 40 FTFs with an aggregate value of more than $50m to clients from the corporate, hedge fund, charity and family office sectors. It currently has two live FTF programs – one backed by UK Government Treasury Bills and the other backed by US Government Treasury Bills.

How did the idea behind your service originate?

The three founders have been working together in the short-dated fixed income markets since 2006 and have specifically focused on the cash management sector since 2011. Over this period, we have advised some of the largest global hedge funds and corporations, as well as working with private banks, family offices and others to help them improve their cash and liquidity management.

By the time we set up TreasurySpring in 2016, we had engaged with hundreds of organizations of all shapes and sizes and felt like we had developed a somewhat unique perspective on the dynamics at play in short-term funding markets. There were four things that really struck us about these dynamics, which drove the creation of our platform.

  • There were huge differences between the instruments and products that large financial institutions used to manage their excess liquidity and those available to non-financial or smaller financial institutions.
  • The products used by the large FIs were typically lower risk and higher-yielding than those available to the rest of the market.
  • Current and impending regulatory changes were only going to decrease the attractiveness of the most widely-used cash management products (bank deposits and money market funds).
  • There was a notable absence of any short-term peer-to-peer lending amongst investment-grade institutions, despite the fact that we were regularly told that corporations were keen to diversify both their cash investments and their funding sources, outside of the banking sector.

It was against this backdrop that we designed and built our Fixed-Term Fund platform with the dual purpose of democratising access to the most attractive cash management investments and providing investment-grade corporations with a low-cost alternative to commercial paper and/or a supplement to their RCF.

What is your customer base?

Our target customer base can be split in two:

  • Institutions that hold material excess cash balances from time to time and that would be interested in reducing and diversifying the risk and/or increasing the return of their short-term cash holdings (Investors); and
  • Investment grade firms that would be interested in raising flexible short-term funding from a diverse network of non-bank funders, as a lower-cost alternative to commercial paper and/or a supplement to a revolving credit facility (Borrowers).

On the Borrower side, our customer base is limited to large financial and non-financial institutions and we are currently working with a number of these groups towards the issuance of our first bank and corporate-backed Fixed-Term Funds in early 2019.

On the Investor side, the universe can be much more diverse as FTFs appeal to a wide audience of cash-rich clients. We are already issuing FTFs to clients in the hedge fund, corporate, family office and charity sectors and expect this universe to continue to grow over time as we increase our product range and our public footprint.

What differentiates you from your competitors?

At this point, we do not have any direct competitors. Fixed-Term Funds are an entirely new asset-class that was conceived, designed and implemented by TreasurySpring, based on several years of R&D. We have developed a unique and proprietary legal, technological and operational infrastructure that can be applied to transform any short-term fixed income investment into a standardised, regulated Fixed-Term Fund that can be issued on demand, at zero marginal cost.

Whilst we have no direct competitors, the most natural comparable asset class is term deposits. Both FTFs and term deposits offer exposure to a single institution for a fixed term, both require no client infrastructure and both provide certainty of the final cash flow at maturity of the product. There are some key differences however.

Term deposits only ever offer exposure to unsecured bank risk whereas FTFs can also offer exposure to sovereign and corporate debt as well as secured bank risk.

The pricing of term deposits is, to a large extent, a reflection of the regulatory capital that a bank has to hold against those deposits. Banking regulation penalises banks for holding short-dated deposits, so banks, in turn, penalise clients for placing these deposits by offering low rates.

Fixed-Term Funds offer access to short-dated obligations of governments and corporations that are not subject to banking regulation. In doing so, buyers receive the fair market price of credit risk rather than the price of regulation or, in simple terms, higher risk-adjusted rates.

Opening bank accounts is becoming increasingly challenging, with the combination of ever-tightening compliance procedures and increasing business-case requirements. Consequently, access to new relationships is becoming restricted and the amount of time and cost involved in opening such relationships is increasing.

Clients of our FTF platform are only required to complete one simple onboarding procedure, which takes days rather than months, in order to access the full range of existing and future products on our platform.

How does your product make treasurers’ lives easier?

Fixed-Term Funds offer treasurers access to cash investments and funding channels that are simply not available to them currently, without any upfront cost or technology integration requirements.

Our goal is to enable all treasurers to have access to the same cash investing and funding tools as the largest and most sophisticated treasury teams, without the need for any increase in infrastructure requirements or internal resource.

What are your plans for the future?

2018 was the foundation year for our business, in which we built, tested and launched our platform, attracted material client flows in both of our initial products and put in place all the necessary infrastructure to grow.

In 2019, we will launch our first Fixed-Term Funds backed by corporate and secured bank risk. In addition, we will expand the range of currencies we offer FTFs in beyond GBP and USD as well as delivering cross currency hedged products, for example, offering access to the US government in GBP.

On the client side, we expect to grow significantly, both in terms of client numbers and client balances. This growth should be accelerated by integrating our platform with one or more payment platforms, treasury investment portals and treasury management systems, a process which we have already started.

In the longer-term, our goal is to grow a global network of forward-thinking treasurers, enabling them to manage funding and liquidity seamlessly, through their chosen technology applications. We want our platform to be the grease in the wheels of all good treasury investment and funding strategies.

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