The Association for Financial Professionals published its "2021 AFP Liquidity Survey," yesterday. A press release, entitled, "Significant Increase in Cash Holdings Within the U.S. Attributed to Pandemic Continues," tells us, "As organizations gradually recover from the liquidity crisis due to the coronavirus pandemic, there is a large focus on preserving their cash and safeguarding against any future uncertainty, according to the 2021 AFP Liquidity Survey, underwritten by Invesco."

AFP explains, "In a survey of 327 corporate treasury and finance professionals, 47% report an increase in their organizations' cash and short-term investment holdings within the U.S. in the past 12 months ending March 2021, which is 16 percentage points higher than the 31% reported in the 2020 AFP Liquidity Survey Report and the highest share reported in the 16 years that AFP has been tracking this data. Seventy-two percent of survey respondents report that pandemic planning and contingencies had either a significant or some impact on the increase in cash holdings at their organizations."

They comment, "Organizations continue to maintain slightly more than half of their short-term investments in bank deposits, as this year's results show that the typical organization currently maintains 52% of its short-term investment portfolio in bank deposits (compared to 51% in 2020). This allocation represents a six-percentage-point increase from 2019 and a four-percentage-point increase from 2018."

AFP's release continues, "Additional findings include: When selecting a mutual fund, the survey reports that 65% of treasury and finance professionals cite fund yield as a primary driver, 55% cite fund ratings, and 45% cite fixed or floating NAV. The share of respondents (60%) who reported that their organizations either have plans to prepare operating cash and investment portfolios for LIBOR or are researching the process for doing so is significantly larger than the 39% who reported the same in last year's survey."

President & CEO Jim Kaitz comments, "As expected, the pandemic's impact on liquidity has shaped and continues to shape organizations' cash and short-term investment decisions.... While the U.S. seems to be turning the corner with the coronavirus pandemic, safety continues to be the most important objective, and treasury and finance professionals remain cautious with their short-term investments."

Laurie Brignac, CIO of the Invesco Global Liquidity Fixed Income Group, adds, "Throughout the last year, safety and liquidity have still reverberated as paramount with investment professionals as US money market fund balances remained elevated.... As we re-emerge from lockdown and adjust to the 'new normal,' investors may consider a strategic segmentation approach with their cash holdings to uncover opportunities in our current market climate."

The Liquidity Survey's Introduction says, "As treasury and finance professionals rebuild cash reserves at their organizations, they are most likely to adopt a more conservative posture when it comes to their companies' cash and short-term investments. Survey respondents indicate their companies are going to be very cautious in their investments. Nearly half (47 percent) will increase their cash and short-term investment holdings compared to the past 12 months. That figure is the highest reported percentage since AFP began tracking this data in 2006. It also highlights the severity of the liquidity crisis treasury professionals have been managing over the past year."

It states, "During these challenging times, treasury and finance professionals continue to rely on their banking partners. A majority (52 percent) of survey respondents indicates that their organizations' cash and short-term investment holdings are being maintained in bank deposits. That share is an increase from the 46 percent reported in the 2019 report and the 51 percent in the 2020 survey."

On "Cash and Short-Term Investments," they write, "Forty-seven percent of corporate practitioners report an increase in their organizations' cash holdings within the U.S. in the past 12 months -- 16 percentage points higher than the 31 percent reported in the 2020 AFP Liquidity Survey Report and the highest share reported in the 16 years that AFP has been tracking this data. The share of those respondents reporting a decrease in their companies' cash holdings within the U.S. decreased by two percentage points from last year to 14 percent."

AFP tells us, "Sixty-four percent of organizations hold some amount of cash outside of the U.S. -- lower than the 69 percent reported last year. Seventy-eight percent of publicly owned organizations hold cash outside of the U.S.; 37 percent of these companies hold at least half of their cash outside the U.S. Sixty-six percent of large organizations -- those with at least $1 billion in annual revenue -- hold cash outside the U.S., slightly higher than the 63 percent of organizations with annual revenue under $1 billion that do so. These findings suggest that publicly owned companies are more likely to invest outside the U.S. than are those that are privately held."

They also write, "Similar to the result in last year's survey, organizations continue to maintain slightly more than 50 percent of their short-term investments in bank deposits. The typical organization currently maintains 52 percent of its short-term investment portfolio in bank deposits (compared to 51 percent in 2020). This allocation represents a six-percentage-point increase from 2019 and a four-percentage-point increase from 2018. The higher balance being allocated to bank deposits is potentially pandemic (COVID-19) driven. As interest rates dropped to zero when the crisis began in the spring of 2020, bank relationships were key as organizations needed to draw down on liquidity. Even though there have been signs of recovery and some cautious optimism in the past 12 months, it is evident that treasury professionals are still leaning on their banks for support."

The survey says, "Companies maintain their investments in relatively few vehicles. Organizations invest in an average of 2.5 vehicles for their cash and short-term investments. This average is a decrease from the 2.27 figure reported in 2020 as well as the 2.6 reported in 2019."

It explains, "The majority of organizations continues to allocate a large share of their short-term investment balances -- an average of 76 percent -- in safe and liquid investment vehicles: bank deposits, money market funds (MMFs) and Treasury securities. The allocation to Government/Treasury money market funds is 17 percent, a mere one-percentage point higher than the 16 percent reported last year."

Finally, AFP adds, "Treasurers consider several factors when deciding where to place their organizations' cash and short-term investments. A vast majority considers the overall relationship with their banks a determinant (cited by 92 percent of survey respondents) while 64 percent indicate that the credit quality of a bank is a deciding factor. Compelling rates offered on deposits and earnings credit rate (ECR) are also considered when treasury professionals are considering which banks to use when investing in bank deposits." (Watch for more coverage in coming days.)

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