Richard Abigail, Group Treasurer and Head of Corporate Finance at global real estate consultancy Knight Frank has developed a sustainable investment strategy over the last three years. The strategy echoes wider sustainability endeavours throughout the group spanning emission targets in its buildings, to electric vehicle use. “Treasury set out to make our cash green,” he tells Treasury Today.
Knight Frank has around £100-200m to invest in a typical yearly tax cycle that builds up through the year. The money, mostly partners tax contributions, used to sit in an overnight deposit account with the company’s main clearing bank before Abigail took the treasury helm.
He began by dividing the portfolio into three seams comprising core cash for essential liquidity, designated cash for tax payments, and strategic cash for a rainy day but also on hand for acquisitions or opportunities – like the company’s recent acquisition of Australian residential estate agent McGrath.
Treasury committed to invest all cash sustainably, splitting the money into two types of investment products comprising green deposit accounts with relationship banks (around 30-40% of the total portfolio) and four money market funds (MMFs). The sustainable MMFs are SDFR Article 8 funds that enshrine ESG and managed by relationship banks, and where Knight Frank invests via the ICD platform.
The large allocation to MMFs is partly a consequence of the absence of short-term opportunities in green deposits. Banks are reluctant to take green deposits for anything less than 90 days because they are re-investing the money long-term, but this doesn’t suit Knight Frank’s liquidity requirements, he explains. “Most green deposits are three-month tenors, but we need shorter-dated stuff too and MMFs allow the flexibility of daily or weekly withdrawals,” he says.
He also likes MMFs because he won’t lose too much yield if rates drop. “The yield curve is flat and inverted because everyone is expecting rates to drop so we want to keep investments short term.”
A central element of strategy at Knight Frank is to invest cash through products that also nurture its key bank relationships. “I like relationship banking. I’m an old school treasurer, and the relationship is more important than the cheapest price for a BACS or the lowest cost response to an RFP,” says Abigail.
He estimates the difference in performance from investing in a green deposit with relationship banks over a ‘brown’ account with a different partner is typically 2-5 bps. “It’s not much to give away,” he says, in another nod to treasury valuing the relationship more than the investment return. “We don’t always get the best rate of return in our green deposits, but part of the rationale is to keep our bank relationships tight.”
