Insight & Analysis

Managing excess cash: liquidity and security are treasurers’ key concerns

Published: Nov 2021

Return is not the main goal of corporates when it comes to cash, says Amundi’s Sandrine Rougeron. Liquidity and security come first in today’s challenging environment for treasury teams seeking to manage their excess cash.

A jar of coins on a wooden table

Liquidity management has never been more challenging for corporates. Central bank policy has pushed returns steadily lower, while corporates’ ability to diversify is increasingly restricted. “Corporates need well adapted and clear solutions,” says Sandrine Rougeron, Global Head of Corporate Clients and Corporate Pension Funds at French asset manager Amundi, in an interview with Treasury Today. She says today’s challenging environment is pushing corporates to consider different solutions and alternative products, moving from one family of liquidity solutions to another. “Rather than pushing any one solution, our strategy is focused on adapting to clients’ needs,” she says.

Standard money market funds which prioritise liquidity while also earning “a little bit of return” and offering some diversification, are the asset manager’s most sought-after product. Not being diversified is a central risk for many corporates – and risk diversification is the first benefit of standard MMF, she says. “Corporates are moving to standard MMF because they provide better diversification than short term MMF. We are seeing increased investments in standard MMF as an alternative to cash deposits.”

For corporates able to tie up funding for longer (typically six to 12 months), Amundi offers alternative investment solutions like short-term bond funds with the promise of a slightly higher returns. These funds invest in short-dated bonds – but longer maturity investments than standard MMF. “It is still what we call a liquidity solution; it is suitable for corporates ready to invest cash with a slightly longer investment horizon.” She adds that demand is coming from corporate clients willing to “push the borders” with their investment but for whom liquidity regarding surplus cash is still the main priority.

Segregated mandates

Away from open ended accounts, Amundi also offers segregated or bespoke mandates that take into account the cash restraints and requirements of individual corporates. Still, even bespoke vehicles are shaped around broad similarities – liquidity and security. “For corporates wanting their surplus cash on hand to finance activities, it must be invested in highly secured investments. Yield comes into the picture, but it is not the first requirement: return is not the main goal of corporates when it comes to cash.”

ESG integration in liquidity solutions is another key trend and strong requirement amongst Amundi’s client base. “We have done a huge amount of work over the last year to make our full range of liquidity solutions 100% ESG,” says Rougeron. The process has involved integrating Amundi’s ESG policy and beliefs into its liquidity options via exclusions and reviewing issuers on a constant basis, backed by Amundi’s ESG credit analysis. “We have to make sure we are aligned and fully integrated,” she says.

European regulators are scrutinising Europe’s €1.4trn money market fund sector following their performance in March 2020. When investors pulled huge sums from money market funds last year in levels last seen in the financial crisis in 2008, the sector came close to experiencing a large-scale liquidity crisis. Rougeron believes any reforms should be seen in the context of the “constant reforms” in the sector through the last decade. “The crisis last year was very specific and MMF were at the centre of the earthquake. Any reforms will be for the benefit of investors transparency and liquidity.”

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