The Association of Financial Professionals, the trade group for treasury managers, has just released its "2008 AFP Liquidity Survey," which shows that "companies have become increasingly conservative with cash holdings and short-term investments." Organizations "appear to be less-focused on securing higher rates of return ... and more concerned with preserving principal and ensuring access to their cash," says AFP spokesman Billy Treger.

The new survey (click here to access) "examines organizations' holdings of cash and short-term investments, as well as the credit crisis and its impact on investment strategies." AFP President & CEO Jim Kaitz says, "Companies are clearly holding onto cash and making safer investments in this economic climate. Rate of return is taking a back seat to safety of principal."

The survey's introduction says, "The failure of the ARS market left a number of organizations with investments in their short-term investment portfolio that were illiquid. As a result of ARS market failure and overall market volatility, organizations kept a greater proportion of their short-term investments in safe and liquid vehicles. This 'flight-to-quality' manifested itself in the return to bank deposits, treasury bills and money market funds as favorite investment choices."

Money market mutual funds remain the largest component of organizations' short-term investments with a 39.4% allocation, up from 30.9% last year. Bank deposits were second with 25.0% (down from 27.1% in '07). Enhanced cash and auction rate securities, which only represented 2.2% and 5.1%, respectively, last year, plunged to 1.6% and 0.9% allocations. T-bills, agency security and Eurodollar deposit allocations rose, while CP, repo and separately managed accounts all declined over the past year.

Among other money fund-related findings: 82% of companies allow the use of money market funds vs. 66% for CP, 18% for ARS and 15% for enhanced cash; the use of CP, repo, and ARS dropped significantly; just 25% of organizations use an "electronic, multi-family trading portal to execute at least some of their short-term investment transactions", and 80% of money fund transactions among those using portals are executed through the portal.

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