Cash & Liquidity ManagementCash ManagementCorporates set to switch cash reserves in search of more than higher rates

Corporates set to switch cash reserves in search of more than higher rates

The pandemic has impacted corporate cash reserves and reshaped cash management strategies of treasurers significantly, research suggests

Recent by Investec into the cash management plans of corporates and large SMEs found that 26 percent plan to switch their cash reserves over the next six months amid central banks raising interest rates to combat inflation.

It also found that 27 percent of those surveyed plan to move 30 percent or more of their cash reserves.

Interestingly, the competitiveness of rates offered wasn’t the most important factor for treasurers when choosing a financial services provider, according to the research.

“The service provided is an important factor,” says Andreas Hartmann, a senior member of the treasury department at SAP. “However, the most important aspect is that our investments, or types of investments, follow a pre-agreed and standardised process so that we can make this scalable.”

The global treasury team at SAP, explains Hartmann, pursues a strategy in which all core banks have a minimum credit rating. Its investment policy is to allocate liquidity in a way that achieves cash diversification while capturing adequate yields.

“We had discussions some years back when the European Central Bank [ECB] started moving towards a negative interest rate environment. We agreed, with the group CFO, not to accept the lower credit ratings of counterparties or investments for the sake of a certain return,” says Hartmann.

“At that time, we reconfirmed the aim of our investment policy, which is to protect the notional amount of the liquidity earned by the business operations,” he says.

“We keep the investments as flexible as needed to cover needs arising from the SAP strategy as well as to protect the company and the CFO from month-end evaluation surprises.”

Hartmann adds that SAP relies on term deposits and conservative short-term money market funds (MMFs) as well as investing in highly rated commercial paper when investing short-term corporate cash.

Diversified strategy

A similar strategy is pursued at International Personal Finance, which as a net debtor uses excess cash to pay off its debt facilities, whilst also pursuing short-term investment options.

“Bank accounts across our operating businesses are monitored daily to ensure sufficient funds are available for the business whilst the excess cash is kept at the minimum levels to ensure efficient use of company assets,” says Kris Adamski, group treasurer at International Personal Finance, noting that overdrafts, where available, are used to reduce cash balances.

“Given the short-term nature of the exposures and the relatively small amounts of deposits, cash deposits and money market liquidity funds are used for surplus fund investments.”

Frank Rust, head of group treasury at Bucher Industries, points out that his treasury team’s investment strategy is determined by the company’s agreed policy/mandate and that this regulates the investment horizon it follows.

“All treasurers face the same problem – how to avoid negative interest rates? But – at the same time, our treasury does not break policy rules,” he says.

He adds that in any given changing interest rate environment, there may be more scope for treasury to go to the company board and ask for a policy change. “However, at the moment, interest rates are rising and we want to be able to participate in higher rates,” he adds.

ESG investing 

Another factor that is increasingly prevalent in treasurers’ investment decisions is to underline their organisation’s wider commitment to Environmental, Social and Governance (ESG) issues.

As a global company, SAP is committed to following ESG principles and this is reflected in its treasury team’s investment ethos, says Hartmann.

“In the past few years, we have entered into several ESG-related money market fund investments and term deposits at SAP, and in 2021 we did ‘social’ related money market fund investments in the US, as well as a first ESG deposit in India,” says Hartmann.

“We keep monitoring new offerings in the ESG space and are keen to enhance the sustainable investment portfolio when feasible and in line with our strategy.”

He explains that, over the course of many years, SAP has published an “integrated report”, which includes comprehensive information related to the various ESG aspects of its business.

“SAP’s global treasury was involved in several ESG-related topics such as buildings and the car fleet and it is also actively supporting this policy with funding and financing initiatives as well as ESG- related investments,” adds Hartman.

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