Strategic Treasurer's latest "Treasury Update Podcast," entitled, "Seismic Shifts in Corporate Treasury: Focus on Investments," features Morgan Stanley Investment Management's Rick Wilkinson and Fred McMullen. The pair discuss online money market fund trading portals in detail, and also address a number of other recent technology topics. Wilkinson says, "Let's look at the portal landscape first. That was one of the first technologies that was introduced that really helped the corporate treasurer in their day to day activities. It allowed them to go to one spot to place all of their investments instead of having to go to each of the fund families independently."
He explains, "Traditionally, portals were run by banks or independent technology companies and weren't really run by asset managers. Now, you also have portals that over time, their functionality has been greatly enhanced. There's a lot of analytics that are available in portals today and other enhancements have come down the line.... What I think the portal companies have done well over time, is respond to market events and respond to client demand.... A lot of the functionalities delivered by these portals have been in response to market events."
Wilkinson continues, "Investment managers have started to aggressively enter the portal space, either building in-house technology to offer portals or by acquiring technology companies or portal companies. You also look at the TMS [treasury management system] providers, and they're starting to offer ... investment functionality, by partnering with portal providers. We've seen several deals over the last year or two where money market fund portals and TMS providers are now working together to deliver investment functionality, directly within the TMS itself. And then, there are other portal providers out there that are starting to develop TMS-like functionality within their portal to enhance their offering."
Why are these changes happening? He answers, "One, it's competition. There are more and more portals out there ... so the competition to drive assets to portals is increasing. Also, ... corporate treasurers are continuously asked to do more with less. The technology providers and asset managers are trying to gain market share by providing solutions that will make the corporate treasurer's job easier.... From the asset manager side, as fee pressure continues to increase, investment managers are looking for new ways to reduce expenses and attract new AUM and increase revenue."
On the future, Wilkinson says, "I think that you will continue to see developments, especially from the asset manager side, where asset managers are continually going to try to increase their presence in the space. I think you're going to see the independent portals, or larger independent portals react like they have so far, and continue to try to keep the market share they've traditionally had. You also have the banks.... It's going to be hard to take those clients away from the banks. You might see some consolidation, but you're definitely going see competition continue to increase in the space over the next several years."
MSIM's McMullen was asked about AI [artificial intelligence]. He comments, "The idea here is that it can really help companies -- whether they're industrial companies or financial services companies, banks, you name it -- change their operating models to deliver enhanced value.... The concern is: 'Is this more about augmenting the intelligence of the work force or is this about replacing?' And there's going to be some displacement, of course. But I think this is much more about augmenting. And you could see just numerous examples of this, you know, across, again, industrial and financial businesses."
McMullen continues, "In industries like financial services ... and functions like Treasury, I think the real focus is on data. Data harnessing technologies are changing how organizations obviously collect, analyze and act on information. And that's very real. We see that in our businesses across the board. We're focused on what technologies can be applied to risk management.... Specific to investment management, you're trying to improve the risk return profile of your investments, create alpha, minimize credit risk in the liquidity space.... Can we use, are we using AI to optimize liquidity, making sure there's enough liquidity in the portfolios to meet clients' needs but not having too much so that it's a drag on the return of the portfolio? That's where things like AI are coming more and more into play."
He also comments, "Right now, you see what's happening in the payment side of the world. When you want to pay something or move money, how instantaneous you can do that? On the institutional side, through the SWIFT system, the Fedwire system, you cannot move money instantaneously, 24 hours a day, around the globe. I wouldn't say it's a clunky process, but it is not an instantaneous, seamless process. But that is going to change over time with these technological developments.... I don't think it's at a tipping point in terms of financial services and in terms of service groups like Treasury management functions."
McMullen tells us, "As we travel around the country and we talk about some of these themes and trends in some of the groups, it's a very mixed bag because in some of the groups we deal with, they are incorporating advanced Treasury technology, installing Treasury workstations and trying to achieve that automation and efficiency that we all want to achieve. And then there's a lot of folks we deal with that are very concerned about that.... You'll have someone ask, 'Well, why would I ever want that? Because that's what I do.' So, there is a fear factor."
He adds, "I think you've got to start ... by convincing people that the benefits of freeing up time and resources to work on more value-added initiatives. What can you do if you have better cash flow forecasting? What can you free your time up to do? Are there other areas of the business you can automate or make more efficient? And I think it's that mindset that has to happen.... Most of the clients we deal with transact using a portal in some way, shape or form. They don't necessarily have their arms there. Their main function is not investments. It's not understanding portals. Their main function is managing treasury."
Finally, Wilkinson comments, "There definitely is some noise. I think it's important when we talk to clients ... to educate them on what's out there. But also be upfront with them about the technology and how it's evolving. If you want to get in at the forefront, some of this technology might not be as seamless as it will be in a couple years. Do you want to invest in that right away, or do you want to see how it plays out? It's very important for clients to talk with their investment managers, talk to their portal providers and ask them what they are doing, what they're seeing in the space, what technology they're utilizing and what's coming down the pipe. And then also talk to their peers to find out what they're using, how they implement some of this and if it's been successful for them."
