Treasury Practice

Problem Solved: Matthew Tatnell, Aviva Investors

Published: Oct 2011

The European debt crisis has left no treasury team untouched. The uncertainty surrounding the peripheral nations’ debt in Europe, coupled with concerns over the solvency of many bank balance sheets means that corporates find themselves faced with a real dilemma. Do they continue to invest in banks directly or via a money market fund, or do they opt for something that affords them a little more peace of mind but that offers them a lower yield?

Matthew Tatnell

Head of Liquidity

Aviva Investors is a global asset management business dedicated to building and providing its clients with focused investment solutions. Its clients range from large corporate and institutional investors, including pension schemes and local government organisations, to wealth managers and individual investors.


“Historically, cash investors have considered the asset class to be relatively ‘risk-free’. Following the Lehman default in 2008 and a number of subsequent bank failures since, that is clearly no longer the case, however. Today, many treasurers are concerned about the security of banks and financial institutions with potential exposure to peripheral Europe” says Matthew Tatnell, Head of Liquidity at Aviva Investors.

“A number of banks are being hit by escalating mark-to market losses on their peripheral European government exposures and if the economic environment deteriorates in the region, as many expect, bank balance sheets could be tested further. It is often a little opaque as to where exposures sit and how large they are. There is a limited amount of information available, but often it is neither clear, nor up-to-date.”

Although most corporate treasurers are unlikely to have direct exposures to sectors such as Greece, Ireland and Portugal, the problems in the peripheral Eurozone have begun to infect the ‘core’, the countries at the heart of the single currency area. The more stressed countries, according to recent credit default swap (CDS) data, now include Italy, Spain, and Belgium. Even France, largely seen historically as a relatively safe haven, has seen CDS premiums more than double in the past three months driven by escalating concerns around a rising primary deficit, an increased debt/GDP ratio and an increase in expectation that France may be forced to provide help to some of its banks with exposure to peripheral European debt. “You wouldn’t expect the typical treasurer to have a credit team in place to perform a detailed assessment of what risks their cash investment portfolios are carrying. Cash investors are worried about banks in the periphery that they are exposed to, but they don’t often have the resources to be able to ascertain what the consequences of those exposures might be.”


After the problems seen in 2008, Aviva Investors developed its money market fund that aims to mitigate much of the risk corporate treasurers face when investing their cash for short periods and provide same day liquidity for investors. The fund is called the Aviva Investors Sterling Government Liquidity Fund.

“The fund’s investments are effectively linked to the UK government, either directly via short maturity UK treasury bills or indirectly via a market called reverse repo. The reverse repo investment typically takes the form of an overnight deposit with a bank rated A1 or P1, which is secured with a pool of zero to ten year UK government securities plus some over collateralisation. “The reason for the over-collateralisation is that in the event that the bank defaults, the fund would own the government bonds and would have to liquidate them. Inevitably, there will be price differentials intraday on these transactions, so the extra collateral is there to ensure the fund can cover these price movements,” explains Tatnell. The cost of investing in the Aviva Investors Sterling Government Liquidity Fund relative to its traditional money market fund or a direct short term bank deposit is around 0.1% – 0.2% of reduced yield, which is a price many investors are willing to pay in the current environment” says Tatnell.

Even though the fund’s investments are either directly or indirectly linked to UK government bonds, Aviva Investors is careful to perform thorough credit analysis on the banks it uses for the fund’s reverse repo. It is part of the routine due diligence that Aviva Investors undertakes on all its money market investments.

“As well as ensuring all investments meet the minimum standards required by the rating agencies, for all our liquidity funds, our four dedicated cash portfolio managers call on the expertise of our global team of 33 credit analysts to perform thorough due diligence be FC1 – BC1 fore constructing portfolios. In summary, we believe we can provide corporate treasurers with valuable insight and understanding into their cash investments, through an innovative liquidity solution.”


The opinions expressed are based on the views of Aviva Investors Global Services Limited (Aviva Investors) and should not be relied upon as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of investments and income received from them can fall as well as rise and you may get back less than invested. Copies of the Full and Simplified Prospectus together with the Report and Accounts of the Aviva Investors Liquidity Funds are available free of charge by contacting us at the address below. Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: No. 1 Poultry, London EC2R 8EJ. Authorised and regulated in the UK by the Financial Services Authority and a member of the Investment Management Association.

Contact us at Aviva Investors Global Services Limited, No. 1 Poultry, London EC2R 8EJ.


All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).