Treasury review drives liquidity and investing solution for continued growth today and tomorrow
The challenge
As the business has grown globally, liquidity and cash positions outside of Japan have expanded, creating foreign exchange (FX) exposure. Recruit’s treasury team therefore recognised the need to manage this liquidity outside of Japan. To help integrate global operations, a treasury centre was launched in London and Tomonori Kimura, Managing Director, Recruit Global Treasury Services, who brought a wealth of treasury knowledge and experience to the job, led this review.
“We undertook a full review across our various treasury units, which included one-on-one discussions to help understand any unique requirements. We then engaged with our banking and asset management partners to explore potential solutions available and scope out industry best practices. This helped to create a strategic roadmap and identify the group’s tolerance to capital risk and volatility, resulting in us drafting a well-articulated investment policy,” commented Kimura.
The solution
Recruit worked with J.P. Morgan and J.P. Morgan Asset Management on the solution which includes:
- Moving away from manual spreadsheet reporting at the subsidiary level.
- Implementation of a more dynamic cash forecasting approach.
- Diversification away from bilateral bank term deposits.
- Cash segmentation and utilisation of off-balance investments to reduce credit risk and enhance liquidity.
- Implementation of a new streamlined treasury management system (TMS).
- Adoption of better oversight, governance and risk management processes.
Best practice and innovation
The treasury team sought banking and asset management partners that could provide an innovative liquidity solution. This solution was designed to address one of the major pitfalls that Japanese multinational corporations face – an over-reliance on bank term deposits. In the case of Recruit, manual cash forecasting across a multitude of subsidiaries made it challenging to invest on a daily basis. By streamlining data flow, treasury was not only able to improve visibility over cash positions, but was also, via its new TMS, able to increase visibility into its overseas currency positions to 99%. The new system allows treasury to easily retrieve cash positions from each subsidiary on a daily basis in real time, enabling the team to analyse fund flows without waiting for each subsidiary to manually report information to headquarters.
By focusing on excess cash, the company has created three distinct segments (operating, reserve, strategic), each with a different investment horizon, forming the centre of the company’s new investment decision-making process. This segmentation has resulted in two major improvements: firstly, a reduction in credit risk away from a concentrated group of deposit taking banks; and secondly, improving cash performance via liquidity funds linked directly to money market rates. The team now has clearly defined investment parameters that reflect Recruit’s risk appetite, while at the same time accounting for the company’s liquidity needs. Furthermore, these changes also satisfy important accounting considerations stipulated by the company’s auditors.
Key benefits
- Risk mitigation – credit exposure and counterparty risk has been significantly reduced via AAA-rated funds managed by J.P. Morgan Asset Management.
- Efficient liquidity control – achieved same-day access to global cash and strategic investments, while efficiently forecasting currency positions and more effective management of FX swaps.
- Increased revenue – new in-house treasury model has resulted in incremental revenue increase of approximately US$10m per annum.
- Governance control – operational rules and flows have been standardised, eliminating manual interventions and resulting in strengthened governance.
A project of this nature would typically require many months of evaluation before it could move forward. What is unique about this project is the speed with which this sophisticated liquidity structure has been implemented.
