The Association for Financial Professionals, a group representing corporate treasurers, published its "2024 AFP Liquidity Survey" last week. (See AFP's press release.) The cover letter says, "Invesco is proud to once again partner with the Association of Financial Professionals (AFP) to sponsor the 19th annual AFP Liquidity Survey Report. This marks the fifth year that Invesco has sponsored this industry-leading exploration into current and emerging corporate cash management trends." Invesco's Laurie Brignac explains, "The cash management landscape has certainly evolved over the five years that Invesco has sponsored this report. Treasury professionals have adapted to multiple challenges during those five years including zero rates, banking challenges, Covid disruptions, geopolitical events, elevated inflation, and the highest rates in decades. A key theme that emerged in this year's report is the elevated levels of cash balances across most organizations, and expectations that this will continue to be the case."

AFP's Introduction tells us, "To understand current and emerging trends in organizations' cash and short-term investment holdings, as well as investment policies and strategies in the current economic environment, the Association for Financial Professionals (AFP) conducted its 19th annual AFP Liquidity Survey in March 2024. The survey generated 239 responses which are the basis of this report. Results from this survey will provide treasury and finance professionals with critical benchmarks on short-term investment holdings and strategies. AFP thanks Invesco for underwriting the 2024 AFP Liquidity Survey for the fifth consecutive year. The Research Department of AFP designed the survey questionnaire, analyzed the survey results and produced the report, and is solely responsible for its content."

Discussing "Cash and Short-Term Investments/Securities," the AFP says, "Forty-four percent of corporate practitioners report an increase in their organizations' cash holdings within the U.S. in the past 12 months (through March 2024) -- 8 percentage points higher than the 36% reported in the 2023 AFP Liquidity Survey Report. The share of those respondents reporting a decrease in their companies' cash holdings within the U.S decreased by 10 percentage points -- from 23% in last year's survey to 13% in the current survey. This result suggests organizations are holding on tightly to their cash balances, signaling some trepidation and caution on their part. Forty-three percent of respondents report that there was no significant change in their cash and short-term balances within the U.S. over the past 12 months, similar to the 41% reported last year."

They write, "The distribution of organizations' cash and short- term balances outside the U.S. is almost identical to what was reported in last year's Liquidity Survey. Sixty-one percent of respondents say that in the past 12 months their organizations' investments outside the U.S. were unchanged -- similar to the 62% reported last year. Twenty-four percent report an increase in cash and short-term balances, identical to the percentage reported in last year's survey, while 15% of organizations decreased cash and short-term balances outside the U.S., a slight uptick from the 14% in last year's report."

AFP's report continues, "These findings suggest the current economic environment is having a greater impact on investing patterns within the U.S. than outside. This could be attributed to companies' increased focus on working capital improvements, process efficiencies and the high interest-rate environment in the U.S. and its positive impact on interest income."

The survey also tells us, "Sixty-four percent of organizations hold some amount of cash outside of the U.S. -- higher than the 59% reported last year. Seventy-eight percent of publicly owned organizations hold cash outside of the U.S.; 14% of these companies hold at least half of their cash outside the U.S. A smaller share of privately held companies (65%) reports have cash and short-term investments outside the U.S. Seventy percent of large organizations -- those with at least $1 billion in annual revenue -- hold cash outside the U.S., significantly higher than the 52% of organizations with annual revenue less than $1 billion that do so. These findings suggest that larger companies as well as publicly owned ones are more likely to have cash in their operations outside the U.S. than are other organizations."

It continues, "Changes in cash holdings are driven by various factors. Eighty-two percent of respondents report that increased operating cash flow has had either a significant impact or some impact on the increase in their organizations' cash holdings in the past 12 months -- a 14-percentage-point increase from the 68% in last year's survey and exactly the same share reported in the 2022 survey report. Other drivers contributing to increased cash holdings at organizations include decreased capital expenditures (cited by 47% of respondents), increased debt outstanding/accessed best markets (44 %), domestic political/regulatory risks (40%) and paid back/retired debt/ movement of debt/freed up cash flow (38%). Additional drivers have impacted the increase in organizations' cash holdings: Economic outlook; Market demand for product; Proceeds from divestitures; Global interest rates/inflation."

The survey says, "Fifty-eight percent of survey respondents report that inflationary impacts have had either a significant impact or some impact on the decrease in their organizations' cash holdings in the past 12 months (ending in March 2024); 52% indicate that increased capital expenditures have had either a significant impact or some impact on the decrease in cash holdings during the same time period. Other drivers contributing to decreased cash holdings at organizations include paid back/retired debt (cited by 48% of survey respondents) and decreased operating cash flow (43%). Survey respondents are more optimistic than they were last year -- 52% of respondents cite increased capital expenditures as a reason for cash decreases, up from the 43% who held this view in 2023. Additionally, a smaller share of respondents this year believes inflationary impacts will decrease cash holdings (58% compared to 65%). Additional drivers have impacted the decrease in organizations' cash holdings: Labor costs; Cash pooling; Increase in interest rates/taxes; Investment market impact."

It comments, "Slightly less than half of respondents (49%) anticipates that their organizations' current cash and short-term investment holdings will remain the same during the second and third quarters of 2024 (i.e., April 2024 through September 2024). Thirty-one percent of respondents expect that their companies' current cash and short-term investment holdings will increase, while 20% predict a decrease in the second and third quarters of 2024. High interest rates and uncertainty in the economy are likely driving organizations to build their cash and short-term investment holdings."

A section titled, "Percentage or Dollar limits on Short-Term Investment Holdings by Asset Managers or Funds," tells us, "Twenty-nine percent of financial professionals report that their organizations have neither a percentage nor a dollar limit on short-term investment holdings by asset manager or fund. This result is 6 percentage points higher than the figure reported in 2023. Seventeen percent of companies impose dollar limits while 33% restrict short-term investment with percentage limits; the remaining 22% have a mix of both dollar and percentage limits."

It continues, "Dollar limits set specific levels of risk applicable to a fund or manager, and percentage limits allow for the changes to be proportionate to the portfolio as it grows/shrinks. Survey results indicate that a larger share of publicly owned companies sets both dollar and percentage limits compared to privately held companies. After the failures of three regional banks in the U.S. the spring of 2023, organizations are viewing their exposures more holistically, incorporating their deposit balances with banks into overall exposure limits and reviewing their product mix. The ultimate goal is to be aware of the total exposure to any underlying counterparty/bank and be able to pivot in the event credit risk changes."

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