Treasury Today Country Profiles in association with Citi

Corporate treasurers respond to the changing investment landscape

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J.P. Morgan Asset Management’s latest PeerView survey finds that treasury professionals around the world are taking proactive steps to overcome short-term investment challenges.

“This study couldn’t be released at a better time,” says Jim Fuell, Managing Director – Head of Global Liquidity Sales, International at J.P. Morgan Asset Management, commenting on the release of its latest PeerView study that takes the pulse of the cash investor community.

Indeed, the convergence of regulatory changes in the money fund space, the impact of Basel III on corporate deposits, the low interest rate environment and various economic and political developments have made short-term investing a dynamic and challenging issue for many corporations.

But, as the PeerView study unearths, corporate treasurers are tackling these challenges head-on by making proactive changes to investment policies and taking a closer look at how cash is segmented.

A change in policy

The survey, conducted early this year, quizzed 378 CIOs and treasurers from the Americas, Asia Pacific and Europe and found that despite the regulatory changes impacting the money fund industry, corporate desire around the world to use MMFs is still strong, with 60% of respondents saying that they will continue to allocate the same proportion of their short-term cash to MMFs.

However, to meet new regulatory realities, nearly half (46%) of respondents plan to change their investment policy in the next six months to one year. This is up from 38% in 2015 when the study was last conducted.

In terms of a regional split, corporates in Europe are the most active in amending their policies (58%), with corporates in the US close behind (46%). This is unsurprising given the regulatory reform that has or is soon to occur in both of these jurisdictions.

Corporates in Asia Pacific are least likely to be looking at amending investment policies, with only 33% saying they have plans to do so. The report says that this could be a reflection of attractive USD bank deposit rates and fewer regulatory pressures in the region compared with Europe and the Americas. It may also be linked to the fact that nearly half of corporates in Asia Pacific state that there is significant work required to amend investment policies.

In changing investment policies, corporates are looking for optionality and flexibility in the products that they use. It is no surprise therefore that 48% say that they now permit floating NAV (FNAV) funds, up from 32% in 2015. Moreover, nearly one-third are looking to add FNAV funds to their list of allowable investments in the coming months and years.

Questions on regulation

Despite this proactive approach to the changing regulatory landscape, many corporates are still coming to terms with the reform in the US or trying to understand what the incoming European regulation will mean for their investment strategies. In Europe, for example, 44% state that they need more time and/or information before they decide on their preferred MMF structures.

The big question mark that many have over the new MMF structures is the introduction of gates and fees, with 41% around the world saying that the risk of gating or a liquidity fee would be the most important factor when selecting new money market fund structures to invest in. This concern was most profound in the US, where 53% said gates and fees are their most important consideration.

This goes some way to explaining why only 37% of US-based investors are currently invested in prime MMFs which operate gates and fees, down from 63% in 2015. That being said, the survey finds that assets are slowly moving back into prime funds in the US, with 50% saying the reason behind this was an increased comfort level in FNAV and gates and fees.

The importance of cash segmentation

With many investors looking at re-evaluating their investment strategies in this dynamic environment, Fuell is pleased to see that more and more corporates are focusing on cash segmentation.

“This demonstrates an increasing level of understanding in regard to the changing landscape and that there is a real focus on short-term investment strategies,” he says. “The environment is not static though and we would recommend that corporate treasurers continue to closely monitor what is happening in the markets and engage with their fund provider to ensure they are prepared to take advantage of the opportunities that arise.”

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