As we mentioned in our August 14 Link of the Day, the Association for Financial Professionals hosted a webinar Tuesday on "Managing Operating Cash Post Reform." The event, which followed last month's release of the AFP 2017 Liquidity Survey, featured AFP's Tom Hunt, Crane Data's Pete Crane, Qualcomm's Geoffrey Nolan and SSGA's Don Cooley. The description said, "In this webinar, hear from participants as they discuss the short term investing market, strategies to segmenting cash, and investment policy considerations." We quote from some of the webinar highlights below.

The AFP's Hunt comments, "Our survey [focused on] operating cash, with 90 days or less generally type of cash that we tend to look at.... Safety is absolutely paramount with 67% [ranking it the highest priority] this year. Liquidity is 30%; yield is a distant third, which is very consistent. If we look back over the history, we're coming up on the 10-year anniversary of the start of the banking crisis. If we look back ... and compare yield versus 2008 versus now, in level of importance, it really hasn't changed all that much. Liquidity has [declined] a little bit but certainly safety of principal has been very important. [C]ompanies want ... safety of that principal, the return of principal versus return on principal."

The survey summary tells us, "Indeed, a general feeling of apprehension is reflected in companies' heavy reliance on bank deposits as their investment vehicles of choice: 53 percent of all corporate cash holdings are still maintained at banks. That is slightly lower than the 55 percent reported last year." Hunt comments, "Looking at some of ... those bank deposit instruments ... basically it's four different categories.... Time deposits for the most part stayed relatively stable, it went down just a little bit year over year. However the structured bank deposit market ... increased rapidly."

Crane told listeners, "The AFP survey shows that cash continues to grow.... Just totaling bank savings and thrifts' money market deposit accounts and savings accounts, and money market funds, together you're talking about a number that's over $11.5 trillion. Everybody always talks about this 'wall of cash,' the buildup of cash, but that number just keeps going up. Whether that's because of the crisis in general, the environment were in, or just because the economy keeps getting bigger albeit at a slow pace, the levels of cash just have continued rising throughout the decade. So I don't think it should be a surprise that cash keeps going up if the economy keeps going up."

He continues, "What's really interesting is ... bank deposits have broken above $9.0 trillion and about half of that is uninsured. It's still remnants from that TAG, transactions account guarantee, program that ended back in 2012. That's where your heavy institutional dollars are ... they are well beyond the FDIC insurance limits. There are signs that that number is starting to peak. They're starting to go down, but it is still early. It's been climbing, but just the last 2-3 months you've seen dips in those Fed numbers which you haven't seen in almost a decade."

Crane adds, "Money market funds, looking over the longer term, they've basically have been flat for [almost] a decade, 7 years or so.... You've had this massive shift from Prime or general purpose money funds, $1.1 trillion, shift into government money market funds. Those assets have remained there but [now] you are seeing prime inflows."

He tells the webinar, "The AFP liquidity survey, if you dig through it, really shows bank deposits as flat, but there was a little down-tick in the numbers of investors favoring bank deposits. Money funds are seeing a little bit of an uptick just recently, so whether that continues, stay tuned. But it certainly has the makings of a shift in the trend."

Crane explains, "If you look at year-to-date, prime money fund assets, which were savaged last year with that massive shift to government ... have been growing. They have grown three weeks in a row, 8 weeks out of 10 weeks, and every month year-to-date.... You're seeing positive numbers into prime money funds. They have not been big. But if you tally them up, you're looking at prime up about $50 billion YTD, which is 14%. Prime as a total, retail and institutional is about $430 billion currently. So there are very encouraging signs that prime money market funds may be in the midst of recovery here."

He adds, "The spreads are ... bigger than they were historically, but, interestingly enough, government money fund yields have risen a little bit faster [than prime] as of late. So if you look at the averages, you're looking at prime institutional money funds of just below 1%. The average is just about to touch 1% and the leading edge is already well over 1%. They're about 22+ basis points over the government money fund and treasury funds, and that's actually shrunk a little bit over the last several months."

SSGA's Cooley comments, "For those investors that truly bucket their cash, and I think that as an industry we've seen a shift here and people are doing a much better job of bucketing their cash, for those investors there are opportunities in the prime space.... [But] there are still other hurdles there for them. I think one of the big ones is the size of the fund. People have left some assets in prime funds, but those funds are significantly smaller than they were several years ago. So it may be a long time before their allowed to get back up to any sizeable balances in those funds."

He adds, "The 3 o'clock cut off time for prime funds is [also] going to be challenging, especially for those West Coast investors. That's always been a challenge, but I think it becomes a little bit more so in this environment. When you talk about spread.... I see the results here coming up. In talking to clients, I get the feeling that spread might be a little bit of a moving target. Right now, we're at about somewhere between 20 and 25 basis points between a government and a prime fund."

Finally, Qualcomm's Nolan tells us, "The world is a changing place. It's constantly changing, whether it's reform we're going through, more cash is coming in to invest, the Fed is on the move, turbulence, etc.... As Pete put it, 'Stuff does happen.' As a result, since I sit on the corporate side, there's a lot of others on the phone who are also on the corporate side managing this money. [Prudence] dictates because this is corporate cash and this is not a hedge fund, you develop a portfolio and you design it to the extent that you can."

Note: Fore more on the "`AFP Liquidity Survey, see the AFP's press release. (See also our July 12 Link of the Day.)

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