Consulting firm Treasury Strategies just released a white paper entitled, "Treasury in Transformation: Results of Treasury Strategies' 2008 Global Corporate Treasury and Liquidity Research Program," which, among other things, discusses the liquidity policies and practices of large corporations. TSI's study says, "In response to market turmoil, Treasury is rebalancing its cash portfolios and restructuring its banking relationships. Market turmoil has led Treasurers to reduce portfolio risk, often by moving money out of active investments and into lower risk, passive investments such as money market funds."
The white paper's section on "Liquidity" says, "As noted earlier, liquidity management is a top concern for Treasurers across most regions and turnover segments. In both our consulting work and our research, we've seen that Treasurers have not only rebalanced their portfolios in response to market conditions, but they have also continued to develop their internal liquidity practices to better monitor, aggregate and manage liquidity. Going forward, Treasurers note they will further rebalance their portfolios, which presents opportunities and threats to financial services providers."
It continues, "Corporations in Asia-Pacific proportionally invest the greatest amount in bank deposits, reflecting strong relationships with their banks, less developed secondary markets for fixed income instruments, and the lack of penetration in money market funds.... While the Canadian market has seemed to be a natural fit for money market funds -- which offer efficiency, convenience and risk minimization -- Canadian Treasurers do not heavily invest in funds. We suspect this is due to the focus of the fund companies on the larger market opportunity in the US."
TSI says, "Money market funds represent a growing and significant percentage of Treasury portfolios, as these instruments offer an attractive yield while diversifying or minimizing credit risk exposures. Long a mainstay of cash portfolios of French corporations, money market funds have gained an increasing share of corporate cash throughout the US and Europe, particularly in the UK. In most cases, where money funds have been adopted they displaced direct instruments. The reasons for this are multiple."
"First, money market funds, due to their scale, can aggregate multiple investments into a large portfolio and thus diversify credit and other risk. Secondly, the largest and most competitive money funds can offer attractive yields. Lastly, money funds are a convenient investment option -- many are now easily accessible through both proprietary and non-proprietary online portals and most offer corporations the ability to make purchases and redemptions later in the day, when they have greater certainty as to their cash position." The study adds, "Treasurers select money market funds based on risk, value-added services, advice and convenience.
