As we mentioned last week (see our July 11 News, "AFP Releases 2018 Liquidity Survey: Bank Deposits, and MMFs, Decrease"), the Association for Financial Professionals published its "2018 AFP Liquidity Survey" recently, which surveys corporate treasurers on cash management and short-term investing preferences. (See the press release here.) Below, we excerpt from portions of the report, underwritten by State Street Global Advisors, relating to bank deposits, money fund selection, and European money fund reforms.

A section entitled, "Banks as Major Depositories for Cash and Short-term Investment Holdings," tells us, "Organizations rely on various bank instruments for their cash and short-term investments. The most commonly used bank products are time deposits and structured bank deposit products. Time deposits are still the most-often cited bank product: 48 percent of treasury and finance professionals report their organizations use time deposits, although this is lower than the 54 percent and 57 percent reported in 2017 and 2016, respectively. Structured bank deposit products are being held by 44 percent of organizations, similar to the 43 percent reported last year and significantly higher than the 23 percent in 2016. The share of organizations using non-interest-bearing accounts continues to decline, with 38 percent of respondents reporting using these instruments in 2017 compared to the 39 percent and 42 percent reported in 2016 and 2015, respectively."

The AFP survey explains, "Organizations continue to place most of their short-term investment portfolios into instruments with very short maturities. On average, 71 percent of all short-term investment holdings are in vehicles with maturities of one month or less -- two percentage points higher than the figure reported in 2017. Another 14 percent of short-term investments are held in vehicles with maturities between 31 and 90 days. Larger organizations with annual revenue of at least $1 billion manage their cash in investment with shorter maturity terms than do smaller organizations with annual revenue less than $1 billion."

Regarding "Primary Drivers in Selection of Money Market Fund," they tell us, "There are various drivers that play a role in the selection of money market funds. The three factors that play the most important role are: Fixed or Floating NAV, Investment Manager for separately managed accounts and Yield. Sixty-four percent of treasury and finance professionals cite Fixed or Floating NAV as a primary driver, while 38 percent cite investment manager for separately managed accounts and 35 percent cite yield as the most important driver when selecting a MMF."

AFP's update says, "Banks play a key role in supporting organizations in their cash and short-term investment strategies by providing them with critical information on economic indicators and trends. In the past few years, it has been challenging to accurately predict the economic environment, and organizations are more likely to look to their banking partners for sound advice. This year's survey results substantiate this claim; 88 percent of finance professionals identify banks as resources their organizations use to access cash and short-term investment holding information."

It continues, "Other resources used by treasury and finance professionals include: Investment research from brokers/investment banks (cited by 42 percent of respondents); Credit rating agencies (32 percent); and, Money market fund portals (30 percent). Over half the survey respondents (52 percent) would prefer to receive information from the above sources via email or website, and 43 percent would like to receive this information from a combination of in-person meetings and electronically."

On "SEC Money Market Reform," the Liquidity Survey comments, "The SEC Reforms that took effect in October 2016 mandate that Prime money market funds now operate with a floating NAV and Government money market funds operate with a stable NAV. In light of these reforms, 50 percent of organizations do not have plans to resume investing in Prime money market funds. Twenty-three percent of treasury and finance professionals report that the NAV will have to prove that it does not move much before their organizations resume investing in Prime money market funds; another 23 percent would resume investing in Prime money market funds if the spread between Prime and Compelling investments is significant."

It states, "Nearly half of survey respondents (49 percent) indicates that no amount of spread between Government and Prime money market funds would incentivize their organizations to invest in Prime/Municipal funds. This is nine percentage points higher than the share who that held the same view last year, and 19 percentage points higher than the figure reported in 2016. Treasury and finance professionals indicate they might consider alternatives in their investment selection as options to complement current investment solutions. Thirty-seven percent are considering separately managed accounts operational (0-6 months) and 23 percent are considering extending maturities. Separately managed accounts, core and strategic, are each cited by 16 percent of survey respondents."

The AFP explains, "In 2008, the G20 group of countries agreed to reforms for money market funds. The European Commission proposed legislation in 2013. The culmination of this is new regulations on money market funds (MMFs) in Europe. The regulations will take effect in January 2019. The Institutional Money Market Funds Association (IMMFA) reports that tighter provisions will apply to all MMFs that are established, marketed or managed in the European Union. The revisions are somewhat similar to those in the U.S., with slight variations. There will be three types of money market funds: Public debt constant NAV funds (similar to Government/Treasury money market funds in the U.S.); Low volatility NAV funds (stringent liquidity provisions similar to U.S. Prime money market funds); and, Variable NAV funds (similar to U.S. Prime money market funds)."

They add, "Public debt and low volatility funds will have amortized cost accounting applied, and mandatory gates and fees should the fund liquidity fall below 10 percent on a weekly basis. Variable NAV funds will have market or model accounting applied. Discretionary gates and fees as determined by Collective Investment in Transferable Securities (UCITS) provisions on fund redemptions will apply to all funds, and there will be further liquidity requirements for Constant Net Asset Value funds."

Finally, the AFP writes, "Nearly 40 percent of treasury and finance professionals are unaware of the changes in the rules that will impact European MMFs. Thirty-five percent are aware of these changes and planning for them. The remaining 26 percent, while aware of these changes, have no plans in place to deal with the new rules. Survey respondents have varied responses about when they will make changes if they plan to shift their European investment choices: 39 percent plan to do so just one month prior to reform, 36 percent will take a step to change three months prior to reform and 25 percent plan to do so six months prior to reform."

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