State Street Global Advisors published a series of articles and called them its "Global Cash Outlook." The pieces include: "For Cash, 2020 Was a Year of Sustained Strength," which reviews the credit profiles of global banks; "LIBORs' 11th Hour: The Urgent Need to Phase Out the Reference Rate," which discusses the coming demise of the rate benchmark; "Lower for Even Longer: Secular US Rates Framework in a COVID-19 World," which reviews economic growth and rates; and "Transformed Overnight: How COVID-19 Changed Cash," which talks about several major themes in the money markets last year. We quote from this last article below. (Note: Thanks to those who attending our Money Fund University! Crane Data Subscribers and MFU Attendees may visit the "Money Fund University 2021 Download Center" to access the recordings and conference materials.)
SSGA's Will Goldthwait writes, in a section entitled, "The Quest for Yield: Lower for Much Longer," "Entrenched low interest rates are prompting concern that the corporate treasury department will revert from profit center to cost center. While safety and liquidity remain top priorities, cash managers 'have never before kept such a sharp eye on yield across their providers,' observed one relationship manager. 'Every basis point matters now.'"
He continues, "Careful cash management is prized more than ever. Clients are looking to improve cash-flow forecasting so they can allocate more efficiently to funds offering the best rate. They are searching for ways to generate yield while still ensuring liquidity. As such, State Street Global Advisors is having more frequent conversations with clients about separately managed accounts, which can be customized according to a company's needs, and about enhanced cash and ultra-short-term bond strategies. The bottom line: there are options for clients willing to take the initiative and get creative."
Under the heading "Technology to the Rescue," Goldthwait explains, "Both the pandemic and the low-rate environment are highlighting the importance of technology, without which treasury functions would have foundered since confinement. Treasuries that were more digitally advanced proved far more resilient to the obstacles of remote work. Those that were behind at the beginning of the pandemic scrambled to catch up. Two-thirds of non-financial corporations said that remote work had accelerated their treasury's digital transformation according to a State Street Global Advisors survey; the number rose to 83% for insurers. Digital workflows and electronic verification are proliferating, while manual processes and hard copies are becoming relics of a pre-pandemic past."
He states, "Cash management portals have proved essential, both to remote operations and to meeting the challenges posed by low rates. Clients are searching for portals with superior functionality. They want portals that enable operational efficiencies, such as letting them set dollar restrictions on authorized traders. They also seek to be able to trade seamlessly among various cash products, rather than calling each sponsor separately. Instead of investing in a main banking partner's money funds, they are making more informed decisions using platforms that aggregate information across all of their strategies."
SSGA also says, "Finally, we hear that automation is also accelerating. 'Our treasury leadership is always interested in new technology that our banking partners are creating,' said one client. 'Many treasury, finance and accounting positions will be automated over the next 10 to 15 years, dramatically changing the size of teams and how they work.'"
A section called, "A New Frontier for ESG Cash," tells us, "The events of 2020 -- Black Lives Matter, expanding political chasms, the #MeToo movement, the forest fires in Australia and the West Coast of the US, and of course COVID-19 -- have inspired an upsurge in social awareness. This is true among both individuals and corporations, as evidenced by the proliferation of CEO statements on events and issues making headlines including race and gender inequalities."
It continues, "Social awareness is fueling interest in ESG money market funds. Our COVID-era survey found that 69% of cash managers believe integrating ESG into cash investments will be a mainstream practice within the next three years. Commonly cited drivers for this shift include client pressure and mitigating reputational and investment risks. Among the range of issues covered by ESG, clients tell us that diversity and inclusion has become a particularly strong focus."
Goldthwait adds, "For the moment, ESG funds remain small, and therefore subscriptions tend to be modest, due to allocation limits. Additionally, there is a significant opportunity for investor education, since ESG cash methodologies are relatively new. Some companies report researching ESG, but have yet to invest due to a lack of selection criteria. Given client interest in ESG cash, assets under management could increase significantly in the near future."
The piece concludes, "Looking ahead, we expect and sincerely hope that 2021 is a better year. The approval of vaccinations is certainly a key step. Meanwhile, 2020 has clearly inspired meaningful changes in the way companies in general, and treasuries in particular, work. One thing that has not changed: State Street Global Advisors continues to strive to be our clients' best partner."
