Treasury teams need to be prepared for the next crisis – and Fixed-Term Funds (FTFs) are a solution that gives corporations access to repo investments which provide a much-needed diversification, argues TreasurySpring’s Head of Sales, John Bentley.
John Bentley
Head of Sales
For treasurers, ensuring the security of their cash is of paramount importance. And in recent months, the collapse of institutions including Credit Suisse and Silicon Valley Bank has underlined the necessity for vigilance where counterparty risk is concerned.
“No one can categorically state that no more banks will fail at some point in the future,” says John Bentley, Head of Sales at TreasurySpring. “It’s really important for corporate treasurers to think about that in the context of their role as cash custodian within the organisation.”
According to Bentley, in the current environment, diversification should be regarded as a core investment pillar alongside security, liquidity and yield. “Treasurers should be looking at what types of instruments are available to them,” he adds. “And this is where we come in.”
Currently, while money market funds (MMFs) are undoubtedly a valuable tool for treasurers, “they are not without their issues.” They are susceptible to run-risks in particular, “as we saw during ‘Truss-enomics’ in September 2022, when a lot of LVNAV funds lost significant percentages of their AUM quickly,” Bentley notes.
In addition, he argues that the universe of investments in which money market funds can invest their cash is “deceptively small” due to their credit constraints – and this leads to a high level of correlation between different funds’ portfolios. “So once you’ve invested in your second or third fund, you’re actually doubling down on risk, not diversifying it – you’re not in the diversified position you thought you were,” says Bentley. [European Commission Report 2023]
Before joining TreasurySpring, Bentley spent 18 years working in MMF and short-duration fixed income fund sales for different financial institutions. “One of the things that always resonated with me was that for clients, there isn’t a lot of optionality beyond the money market funds industry,” he comments. “Some clients might look at slightly longer duration fund investments – but were concerned by the capital that is at risk. Others looked at segregated mandates too, but they quickly established that these were not optimal or conducive to the requirements of the treasury function within those organisations.”
TreasurySpring – a financial technology company that gives cash investors access to wholesale money markets – offers a new approach which Bentley believes acts as a “third leg” on the corporate treasurer’s stool.
“Treasurers can use unsecured deposits with their banks; they can use money market funds for some diversification and liquidity – and now they have a third option,” he says. “Essentially this is a plug-and-play solution that enables them to gain access to the broadest range of money market exposures, in a direct maturity-matched format without requiring the hugely painful process you would ordinarily need to set up that access directly.”
An original take on cash investing
So, what exactly does TreasurySpring offer? “Our solution is a completely original take,” says Bentley. “It shares many characteristics with a term-deposit – you buy it for a particular period of time, and you get back the capital plus income. It also benefits from the same characteristics of a fund. Each FTF is an isolated smart cash investment, encapsulating the full spectrum of financial infrastructure typically needed to buy and hold that investment, but within an easily created and accessed fund.”
He adds that short-term cash instruments are available in three ‘verticals’: Governments, Supranational, sub-Sovereign and Agency (SSA); Banks and Corporates. Each has its own characteristics: a unique selling point of the bank vertical, for example, is that it offers access to secured bank lending. With clients looking for new avenues to secure their cash in a safe and secure way, Bentley emphasises the value of being able to access the US$12trn market that investment banks use to manage their own cash. “My argument would be to follow the smartest person in the room, wherever possible,” he states.
However, as Bentley explains, “this is also a market which comes with a high barrier to entry. In order to trade repo directly with an investment bank, you need legal, operational, technological infrastructure resources and budget, which are out of reach for most treasury teams. You need to have a connection at the bank, and understand the collateral basket you wish to have. You need to appoint a tri-party custodian – basically you need a lot of resources to execute.”
Likewise, says Bentley, if treasurers wish to diversify repo investments across different banks, “they will need a lot of cash to make that worthwhile from the banks’ perspective, and a lot of patience too.”
Plug-and-play
What TreasurySpring offers therefore is the ability to offer access to new parts of the financial markets as a plug-and-play solution. “Basically we short-circuit that painful process,” says Bentley. “You complete one KYC onboarding with us, which then allows you to access repo across multiple banks, or other short-dated cash instruments, at the click of a button. You don’t need a custodian or any other market connectivity, we do all of that for you.”
With a free digital onboarding typically completed faster than the time taken to open a bank account, Bentley says clients can readily access over 1,000 cash products across seven currencies. “We provide the same market access, connectivity and quality of cash investments as if you were set up as the treasury team in a leading investment bank directly – all with a simple, intuitive UI, and without the need for complex legal agreements,” he states.
With the importance of being ready for the next crisis uppermost in treasurers’ minds, Bentley argues that TreasurySpring’s approach enables treasurers to be prepared. In particular, it enables them to diversify their investments with a platform that allows them to secure their cash, to buy government and SSA securities without needing to go through broker dealers, and to maturity-match their liabilities as far as possible.
“Ultimately, they should look at the processes that the banks they partner with take to manage their own cash, and mirror that,” he concludes.
Visit us at treasuryspring.com and learn how you can make smart cash investing, easy.
