With most corporate investment policies centered on security and liquidity, it's probably not surprising that bank deposits and money market funds form the backbone of many corporate cash management investments, as a new survey of 215 treasurers by SunGard indicates. In fact, bank deposits account for more than two-thirds of companies' investments, while money market funds account for nearly half. Third in popularity, after bank deposits and money market funds, is another group of generally safe investments -- government and treasury securities. About 29 percent of respondents include these in their portfolios.
The survey respondents come a mix of industries and from around the globe, although the biggest group -- about 50 percent -- are from the U.S. About 70 percent work at companies of $1 billion or more in revenue.
Down the road, it appears that money market funds might increase their showing in companies' portfolios, while bank deposits will drop a bit. Almost 62 percent of respondents said that bank deposits would be important in their future investment strategies, a small drop from the 68 percent that currently include them. Conversely, 55 percent said money market funds will be an important component of future investment strategy, up from 48 percent that include them in their portfolios today. The researchers theorize that the projected increase is a result of treasurers eyeing new money fund variations, such as variable NAV (net asset value) funds and enhanced funds.
Variable NAV funds, as their name implies, have net asset values that fluctuate based on the underlying value of the securities, providing investors with greater price transparency. "Having more timely information lets investors make informed redemption decisions, which promotes gradual asset flows rather than sudden withdrawals," according to this paper from Deutsche Bank.
Enhanced funds also are variations on traditional money market vehicles, as PIMCO explains in this report. They are designed to provide liquidity and preserve principal preservation, but also seek returns that are superior to those of traditional money market offerings.
Even as many companies consider expanding their holdings to include these new forms of money market funds, corporate investment policies remain conservative. Preservation of capital with immediate access to some or all of the company's cash is an element of 44 percent of investment policies. At the same time, 17 percent indicated that yield is a major consideration. The survey report notes that while historical figures aren't available, it's likely that the percentage of CFOs and treasurers willing to compromise, at least to some extent, on same-day liquidity likely has recently increased.
When it comes to investment challenges, accurately forecasting cash flow takes top billing; it was cited by 43 percent of survey participants. Next up are cash management issues, such as gaining access to "trapped" cash, which was mentioned by one-fourth of respondents.
As new regulations, liquidity constraints and struggling economies continue to impact the investment market, companies will need to focus on both sound investment policies, as well as tools that allow them to accurately forecast cash flow and access funds across their enterprises, the report notes.
