Treasury Today Country Profiles in association with Citi

Welcome to the liquidity machine

Golden coins in buckets

In a volatile world, where market pressures seem to be pulling treasurers in several directions at once, being able to automatically manage operational liquidity and surplus cash sounds like an attractive proposition. A new banking solution promises to deliver just that.

For the treasurer, maintaining daily liquidity for transactional purposes whilst investing surplus cash when low-yield is the norm is par for the course. Doing this automatically is not. A new banking solution may be about to change this state of affairs.

Interest rates are low and corporate cash holdings are at an all-time high. The causes are well-documented but the backdrop to the hard launch last week of a new automated liquidity solution could not have been more appropriate if it had been stage managed. But in seeking to offer its corporate and financial institution (FI) clients an optimised investment opportunity, HSBC’s Liquidity Investment Solutions (LIS) seems to give treasurers some of what they need in a difficult world.

How well it delivers remains to be seen but “certainly we recognised that there is a need for alternatives to deposits or on balance-sheet solutions for an array of clients,” explains Tom Schickler, Global Head of Product Management, Liquidity and Cash Management, HSBC. The pilot programme for LIS included HSBC clients from both the corporate and FI sectors and feedback to date has been positive.

Investor pressure

With most corporate and FI investors by now surely having revisited their investment mandate, it appears many have been looking to optimise returns on a risk weighted basis and more actively manage diversification. Placing investments into an automated environment should alleviate some of the pressure in this respect, says Schickler. What’s more, LIS “frees up treasurers from the daily process of cash prediction and investment to focus on adjusting their investment strategies as the market environment changes”.

The solution is designed to be used by clients with a UK or US HSBC investment account, allowing funds to flow between this and the investment portfolio. Because LIS links to HSBCnet, investors domiciled in these countries are able to consolidate global cash for onward investment. “We will be extending the solution globally and we have planned implementations in Asia later this year,” adds Schickler.

There is a danger that addressing client needs with an automated solution will degrade the relationship side of investing. Not so in this case, says Schickler. “Intrinsically this links very well with the array of transactional services we provide so we see this as being complementary to, rather than replacing, any activity,” he explains. “For our clients it is taking away an execution element, freeing them up to carry out more value-added activities.”

LIS in action

In essence, LIS lets users automate the daily, weekly or monthly allocation and investment of excess cash. It deploys a dynamic rebalancing model to switch between transactional cash needs and the aims of the client’s investment portfolio, executing investments or redemptions within the parameters set by the user. “The user has a lot of flexibility in terms of calibrating the solution,” comments Schickler, adding that within the invested portfolio, investment can be allocated across and within asset classes, fund managers and counterparties.

Confidence in decisions is supported by the system’s reporting functionality. This demonstrates compliance with the broader corporate investment mandate so that the need to actively monitor the status of operational and investible cash is lessened. “It allows treasurers to focus on what’s most critical for them as well as providing a record which they can bring to the boardroom to demonstrate that compliance.”

LIS is aimed squarely at the sophisticated investor and so far only offers access to triple-A rated sterling, US dollar and euro money market funds from HSBC Global Asset Management Group, BlackRock, Goldman Sachs Asset Management and J.P. Morgan Asset Management.

Additional asset classes – such as fixed income and repos – and investment durations are planned. Expansion may also involve higher-yield assets. “Our view is to connect our clients seamlessly to the array of investment vehicles in which they wish to deploy. We’re going to go where our clients take us,” explains Schickler. Beyond the “obvious element of due diligence” he says “we’re agnostic as to what types of investments are offered”.