Corporate treasury group the Association for Financial Professionals, or AFP, just released the results of its "2011 AFP Liquidity Survey," which includes information on short-term investing, cash management trends and investment policies, and usage of money fund trading portals among large companies. The release says, "In its 6th year, the AFP Liquidity Survey provides CFOs, treasurers and other financial professionals data to benchmark their companies' short-term investment strategies against their peers.... The 2011 report reflects a survey of AFP members conducted in May 2011. The survey found that financial executives continue to use an extremely conservative approach to cash investment."
The "2011 AFP Liquidity Survey's" "Key Findings" comment, "Even if financial professionals have a slightly more upbeat outlook, companies continue to hold nearly four-fifths of their cash and short-term investment holdings in three historically ultra-safe investment vehicles: bank deposits, money market mutual funds and Treasury securities. Recent regulatory changes are not currently anticipated to cause any greater shift to bank deposits. For example, survey respondents indicate that their organizations are not planning to alter their investment in bank deposits as a result of the repeal of Reg Q (which will allow for interest payments on corporate bank deposits)."
They continue, "Outside of the U.S., a vast majority of cash and short-term investment holdings are maintained in bank deposits. Fifty-three percent of survey respondents indicate that their organizations have cash holdings outside of the U.S.... These organizations hold, on average, 57 percent of their total cash holdings in the U.S. Another 14 percent of these cash holdings are held in either Canada or Mexico while 17 percent of the cash holdings are in EMEA (Europe, the Middle East and Africa)."
AFP explains, "Whether or not they have a written cash investment policy, most organizations have a list of permissible investment vehicles they can hold in their short-term investment portfolio. Virtually all organizations permit the use of bank deposits as a vehicle for short-term investments. In addition, 82 percent of organizations permit the use of Treasury bills, while more than half of organizations allow the use of 'pure' Treasury money market mutual funds (67 percent), commercial paper (59 percent) and diversified money market mutual funds (54 percent)."
They continue, "Organizations allocate an average of 78 percent of their short-term investment balances in three safe and liquid investment vehicles: bank deposits, money market mutual funds and Treasury securities. Not only does this result represent a four percentage point increase from the results reported in the 2010 AFP Liquidity Survey, it matches the result cited in the 2009 survey, is above the 73 percent reported in the 2008 survey, and is significantly higher than the 67 percent reported in 2007. Forty-two percent of short-term investment balances are maintained in bank deposits, an increase of less than a percentage point from 2010. Organizations also returned funds back into money market mutual funds -- with holdings in their portfolios growing by more than three percentage points for diversified money market mutual funds (to 19.1%) and by a percentage point back into 'pure' treasury money market mutual funds (to 10.4%)."
The Survey also says, "In the U.S., changes stemming from the Wall Street Reform and Consumer Protection Act ('Dodd-Frank') resulted in the repeal of Regulation Q, which will allow financial institutions to pay interest on demand deposit accounts. The same legislation also extended unlimited insurance from the FDIC for non-interest-bearing transaction accounts (often tied to an Earnings Credit Rate) through December 31, 2012.... Half of survey respondents indicate that their organizations do not plan to increase the balances that they hold at U.S.-based relationship banks as a result of the changes in Reg Q and FDIC insurance availability."
Look for more excerpts from the "2011 AFP Liquidity Survey." The survey contains a number of statistics on "multi-family trading portals" (or money fund portals), which we'll cover in coming days.
