SPECIAL REPORT: 2019 CASH MANAGEMENT SURVEY

PAGE 2

How Corporate Treasuries Are Seizing the Moment

Sponsored by ION, BELLIN

Treasury professionals succeed or stumble based on their abil-ity to distinguish signals from

noise. This competency has been put through its paces during the past 12 months, according to results from Treasury & Risk’s “2019 Cash Manage-ment Survey.” These findings under-score that corporate treasury func-tions are preparing to be subjected to even more clamor, external volatility, fraud, cybersecurity risk, regulatory demands, and talent and technology challenges in the year ahead.

The survey results show that trea-sury functions are managing their cash prudently in the face of growing volatility, notes BELLIN director, sales North America, Hung Nguyen. The findings also suggest that “uncertain-ty in the global economy is causing businesses to entrench and build their cash reserves to weather any financial downturn,” he adds.

As more signs of a slowdown emerge, treasury leaders must deter-mine which indicators are meaningful and which are not. “The cacophony of noises seeking to grab attention can be related to concerns about trade, speculation about interest rate adjust-ments, or otherwise,” says Strategic Treasurer managing partner Craig Jeffery. “Treasury professionals will make adjustments based upon real events actually happening that will impact their organization.”

In the coming months, this prac-ticality will need to be applied to companies’ levels of cash reserves, adjustments to the mix of cash and short-term investments (including overseas holdings), and a range of internal technology, talent, and risk management challenges. “Continued headwinds from low interest rates globally, coupled with increased pressure from global regulators and the investor community,” notes Ken Thomas, a managing director with Protiviti, require “treasury functions to be balanced and innovative in managing their company’s cash and solvency.”

Cash Reserves RisingThe “2019 Cash Management Sur-

vey” was completed in September by treasury executives across all indus-tries. Twenty-nine percent of respon-dents work in companies with annual revenues of less than $100 million; 22 percent earn $100 million to $1 billion; 29 percent have revenues of $1 billion to $10 billion; and 27 percent exceed $10 billion.

The survey’s most compelling re-sults, according to BELLIN head of customer advisory Rüdiger Schlecht, include the fact that far more organi-zations increased cash reserves in the past year (42 percent) than reduced cash reserves (22 percent). See Figure 1.

Schlecht holds up two of the sur-vey’s other findings as also notewor-thy: First, that nearly two-thirds of responding organizations (62 percent) are net investors as opposed to net borrowers (38 percent). And second, that 31 percent of global companies plan to reduce, during the next year, the portion of cash and short-term in-vestments that they hold abroad.

2 TREASURY & RISK NOVEMBER 2019 SPECIAL REPORT treasuryandrisk.com

BY ERIC KRELL

Seizing the Moment by Stockpiling Cash

Figure 1: To what degree have your

organization’s cash reserves changed in

size over the past year?

20%13%

9%

37% 22%

Increased, greater than 10%

Increased less than 10%

No significant change

Decreased less than 10%

Decreased, greater than 10%

Source: “2019 Cash Management Survey,” Treasury & Risk.

Overall, the survey found that companies continue to increase their cash reserves, which likely reflects a response to an increasingly uncertain global business environment, Nguyen notes. He also points out that some companies are tempering their pace of growth in response to the global slowdown. Some of these companies may have begun reducing capital ex-penditures more than a year ago, “and we’re now seeing the effect of growth slowdown,” Nguyen adds.

Sameera Sreepada, director of product marketing for ION Treasury, agrees. “Uncertainty related to geopo-litical risk is having a notable impact on cash management practices across industries this year, and we expect that to continue,” she says. “Another relat-ed external factor that is affecting cash management—and particularly cash pooling around the world—is the shift-ing tax and regulatory landscape.”

Increases in operating cash flows (cited by 25 percent of respondents), reductions in operating cash flows (18 percent), reduction in capital ex-penditures (9 percent), merger and acquisition (M&A) activity (9 percent), and reduction in corporate debt (8 percent) mark the factors that survey respondents said had the most influ-ence on their corporate cash reserves in the past year. When comparing the 2019 results against last year’s survey

results, it is worth noting that more or-ganizations experienced a reduction in operating cash flows in 2019.

It is also notable that the propor-tion of companies reducing corporate debt (8 percent) and/or reducing cap-ital expenditures (9 percent) in 2019 effectively doubled compared with the 2018 iteration of the same survey. These reductions in capex and corpo-rate debt, Nguyen says, are a “clear

signal that companies are wary of un-certainty in the business climate” and are “shoring up their balance sheet to weather any adverse financial down-turn in the economy.” See Figure 2.

When treasury professionals proj-ect how they expect their organiza-tion’s cash reserves to change in size

treasuryandrisk.com NOVEMBER 2019 SPECIAL REPORT TREASURY & RISK 3

(continued on page 6)

Treasury & Risk’s “2019 Cash Management Survey” suggests treasurers are responding to a discordant set of global economic indicators by building cash buffers and

making conservative investments.

2019: What actually impacted cash over

the past year

2018: What respondents expect to impact cash

in the next year

Increase in operating cash flows 25% 41%

Reduction in operating cash flows 18% 8%

Increase in capital expenditures 6% 6%

Reduction in capex 9% 10%

Increase in corporate debt level 6% 2%

Reduction in corporate debt 8% 8%

Uncertainty in global business climate (e.g., Brexit) 5% N/A

Trade policy / tariffs 4% 0%

U.S. tax law changes 5% 4%

M&A activity 9% 10%

Share buybacks and/or dividends 3% 8%

Issuing new equity 1% 2%

Other 1% 0%

Figure 2: Over the past year, which one of these factors has had the most impact on your company’s cash reserves?

Source: “2019 Cash Management Survey,” Treasury & Risk.

Cash management is vital for the survival of any company or group, regardless of its business, size or location. It has been a corporate treasury staple and an integral part of the job profile of the corporate treasurer for many years. Recently however, much has been made of the potential of new technologies to enhance and supersede traditional cash management processes.

Buzzwords such as automation, digitization and artificial intelligence (AI) have some treasurers worrying about their future: Are we facing an entirely automated cash management process? Are machines taking over and replacing corporate treasurers completely? What responsibilities remain beyond the

digital transformation? The answers to these questions are much more complex than a simple yes or no. They start with the here and now.

The cash management fundamentals of good decision-makingIn order to assess the potential of any technological changes to the cash management process, we need to establish a bottom line: What is it that treasurers actually need to support their business to maximum value? For cash management, it ultimately comes down to the following.

Transparency and visibility

Corporate treasurers need information. And they need all information. Trying to draw con-clusions from incomplete data is like trying to find the right place with half the map missing. This is why treasurers need group-wide trans-parency and visibility of financial data from all

entities and accounts.

Quality data

At its core, treasury management is about having the right information to make the right decisions. If the data is unreliable, so is the action I base on it. Therefore, data quality is as crucial, if not more crucial than

data quantity.

Real-time data

Quality data is all about timing. Information that was accurate at one point in time can quickly become useless if it takes too long to be transmitted. In treasury, yesterday’s data is as good as no data. This is why treasurers need data available in real time, or as close to it as

possible.

The Future of Cash ManagementWork with Your Data – not for Your Data

reliable decision-making

unreliable decision-makingData

Transparent data

accurate data

real-time-data

real-time-data

The three types of information are inherently connected: transparent, accurate and real-time data cannot be viewed in isolation. If you have one but not the other, you’re still left with an incomplete picture.

Thankfully, modern treasury management systems have made it possible to have access to timely and reliable information. While cash managers used to spend the bulk of their time gathering data and chasing their subsidiaries for balance and cash flow information, they now live in a world where this is available at the click of a button.

This has been made possible by group-wide, one-platform tools where information is centrally available. Account statements and the financial status from across the group are accessible, as are cash flow information, long- and short-term cash positions, forecasts, planning data and reports. Transparency and visibility have made cash management operations much more straightforward and strategic. It’s all about what to do with the information,

rather than where to get it.So why would you need more than that? Cash management has assuredly come a long way. On the same coin, there is more ground to gain and progress to be had.

Enhanced automation

There are a number of processes, such as automatic account statement retrieval or auto-reconciliation of plan/actual data, that can run in the background without any human intervention at all. Automation rules and scheduled processes bring even more efficiency and free up treasurers’ time for other tasks.

Machine learning/AI

Many see great potential in machine learning/AI for cash management. Cash flow forecasting in particular could benefit from supervised learning. With the potential to store and collect huge amounts of data in the cloud, comes the potential to use this data to “teach” machines. Yet, many follow-up questions remain unanswered. How do you deal with the fact that client data cannot simply be combined at will, limiting potentially large amounts of data to comparatively small silos in terms of machine learning input? Is it

really that valuable to feed unstructured information into a machine?

Real-time account information through APIs

API technology has been another gamechanger in how information is made accessible. It enables two systems to communicate directly, and this information, for example real-time account statements and intraday account balance information as soon as money is credited to or debited from an account, could be processed and responded to in real time. Treasurers could trigger information directly and take a huge step towards an “instant treasury.” They can also benefit from an API interface to SAP for real-time account statement import. Add WebSocket interfaces, and you even rule out redundant data communication.

The cash management process of today and tomorrow

Visit bellin.com/guides to view our series of guides covering TMS value benefits.

For inquiries, please call 1-800-251-5385 or email welcome@bellin.com

Information gathering by email

Decentralized processes

Data silos

Outdated information

Group-wide platform

Account statements received centrally

Data integration

Up-to-date, reliable information

Increased process automation

Real-time account information

Enhanced data

Strategic insight

Cash management is vital for the survival of any company or group, regardless of its business, size or location. It has been a corporate treasury staple and an integral part of the job profile of the corporate treasurer for many years. Recently however, much has been made of the potential of new technologies to enhance and supersede traditional cash management processes.

Buzzwords such as automation, digitization and artificial intelligence (AI) have some treasurers worrying about their future: Are we facing an entirely automated cash management process? Are machines taking over and replacing corporate treasurers completely? What responsibilities remain beyond the

digital transformation? The answers to these questions are much more complex than a simple yes or no. They start with the here and now.

The cash management fundamentals of good decision-makingIn order to assess the potential of any technological changes to the cash management process, we need to establish a bottom line: What is it that treasurers actually need to support their business to maximum value? For cash management, it ultimately comes down to the following.

Transparency and visibility

Corporate treasurers need information. And they need all information. Trying to draw con-clusions from incomplete data is like trying to find the right place with half the map missing. This is why treasurers need group-wide trans-parency and visibility of financial data from all

entities and accounts.

Quality data

At its core, treasury management is about having the right information to make the right decisions. If the data is unreliable, so is the action I base on it. Therefore, data quality is as crucial, if not more crucial than

data quantity.

Real-time data

Quality data is all about timing. Information that was accurate at one point in time can quickly become useless if it takes too long to be transmitted. In treasury, yesterday’s data is as good as no data. This is why treasurers need data available in real time, or as close to it as

possible.

The Future of Cash ManagementWork with Your Data – not for Your Data

reliable decision-making

unreliable decision-makingData

Transparent data

accurate data

real-time-data

real-time-data

The three types of information are inherently connected: transparent, accurate and real-time data cannot be viewed in isolation. If you have one but not the other, you’re still left with an incomplete picture.

Thankfully, modern treasury management systems have made it possible to have access to timely and reliable information. While cash managers used to spend the bulk of their time gathering data and chasing their subsidiaries for balance and cash flow information, they now live in a world where this is available at the click of a button.

This has been made possible by group-wide, one-platform tools where information is centrally available. Account statements and the financial status from across the group are accessible, as are cash flow information, long- and short-term cash positions, forecasts, planning data and reports. Transparency and visibility have made cash management operations much more straightforward and strategic. It’s all about what to do with the information,

rather than where to get it.So why would you need more than that? Cash management has assuredly come a long way. On the same coin, there is more ground to gain and progress to be had.

Enhanced automation

There are a number of processes, such as automatic account statement retrieval or auto-reconciliation of plan/actual data, that can run in the background without any human intervention at all. Automation rules and scheduled processes bring even more efficiency and free up treasurers’ time for other tasks.

Machine learning/AI

Many see great potential in machine learning/AI for cash management. Cash flow forecasting in particular could benefit from supervised learning. With the potential to store and collect huge amounts of data in the cloud, comes the potential to use this data to “teach” machines. Yet, many follow-up questions remain unanswered. How do you deal with the fact that client data cannot simply be combined at will, limiting potentially large amounts of data to comparatively small silos in terms of machine learning input? Is it

really that valuable to feed unstructured information into a machine?

Real-time account information through APIs

API technology has been another gamechanger in how information is made accessible. It enables two systems to communicate directly, and this information, for example real-time account statements and intraday account balance information as soon as money is credited to or debited from an account, could be processed and responded to in real time. Treasurers could trigger information directly and take a huge step towards an “instant treasury.” They can also benefit from an API interface to SAP for real-time account statement import. Add WebSocket interfaces, and you even rule out redundant data communication.

The cash management process of today and tomorrow

Visit bellin.com/guides to view our series of guides covering TMS value benefits.

For inquiries, please call 1-800-251-5385 or email welcome@bellin.com

Information gathering by email

Decentralized processes

Data silos

Outdated information

Group-wide platform

Account statements received centrally

Data integration

Up-to-date, reliable information

Increased process automation

Real-time account information

Enhanced data

Strategic insight

during the next year, 41 percent expect reserves to increase, 43 percent proj-ect no significant change, and 17 per-cent expect a decrease (with roughly three-quarters of that final group expecting a decrease of less than 10 percent). However, compared with the 2018 survey, significantly fewer respondents said they expect cash reserves to increase by more than 10 percent over the next year—13 percent in 2019, vs. 29 percent in 2018.

The factors that respondents ex-pect to influence their cash reserves in the future also changed significantly. In last year’s survey, 41 percent of re-spondents indicated that increases in operating cash flows would have the largest influence on corporate cash in the coming year. This year, however, only 24 percent of respondents expect increases in operating cash to have the most significant impact on cash reserves. Additionally, nearly twice as many respondents this year (15 percent in 2019, vs. 8 percent in 2018) expect a reduction in operating cash flows to have the largest impact on their cash reserves over the next year.

“It suggests that companies are slowing down their pace,” Nguyen re-ports, “and some effect of the global business slowdown may already be taking hold.” This year’s survey respon-

dents also think that uncertainty in the global business climate (due to events such as Brexit), as well as trade policy and tariffs, will have a much greater im-pact on cash reserves during the com-ing year than last year’s respondents predicted. See Figure 3.

Other external factors also appear likely to exert significant impact on any internal decision-making con-cerning cash reserves in 2020, notes Jeffery, who points to the growing negative interest rates earned after in-flation and an “economic deceleration in Europe spreading to other markets and creating a feedback loop.”

More Cash Management Challenges

Allison Flexer Hughes, financial management senior manager with-in Grant Thornton LLP’s business consulting practice, sees companies’

ability to react effectively to tariffs, political volatility, and/or a downturn as hinging on the quality of forecast-ing processes. If there is a prolonged downturn, “treasury leaders should be ready to participate in, and pro-vide supporting data for, reviews of internal functions and business units to identify which are critical to core

6 TREASURY & RISK NOVEMBER 2019 SPECIAL REPORT treasuryandrisk.com

STOCKPILING CASH (cont’d from page 3)

Source: “2019 Cash Management Survey,” Treasury & Risk.

Figure 3: Which of these factors do you expect to have the most impact on your company’s cash reserves in 2020?

5 10 15 20 25

INCREASE IN CAPITAL EXPENDITURES8%

REDUCTION IN CAPEX5%

UNCERTAINTY IN GLOBAL BUSINESS CLIMATE (E.G., BREXIT)10%

TRADE POLICY / TARIFFS8%

M&A ACTIVITY10%

SHARE BUYBACKS AND/OR DIVIDENDS3%ISSUING NEW EQUITY0%

INCREASE IN CORPORATE DEBT LEVEL4%U.S. TAX LAW CHANGES3%

OTHER5%

REDUCTION IN CORPORATE DEBT6%

REDUCTION IN OPERATING CASH FLOWS 15%

INCREASE IN OPERATING CASH FLOWS 24%

operations,” she says. “Organizations may consider the sale of underper-forming assets and business units, which would require treasury’s input on which businesses are the most ef-ficient users of capital and generators of profit.”

Delivering that data requires the right technology, which figures prom-inently among the secondary issues and challenges affecting cash man-agement capabilities:

  Regulatory requirements. A source of pain for years, regula-tory compliance requirements continue to increase and inten-sify. Corporate treasury groups and bankers are especially burdened by activities related to KYC (Know Your Customer), reports Jeffery. In most cases, companies are solving these challenges within their organi-zation, he reports, adding that “the pain is increasing at esca-lating rates.” Protiviti’s Thomas adds that the highly regulated nature of cross-border cash management activities also marks an ongoing challenge.

  Fraud. “Payment fraud contin-ues to grow increasingly auto-mated, sophisticated, and adap-tive,” Jeffery reports. “This has led to more attacks and a greater level of financial success” for the

attackers. In response, Jeffery and his team expect more orga-nizations to invest in anomaly- detection tools, conduct more training and testing around pay-ment security, and assess and strengthen end-to-end payment processes.

  Cybersecurity. Payment fraud is often perpetrated via cybersecu-rity breaches, another challenge for increasingly digital treasury functions—and one which ION’s Sreepada says treasurers are fo-cusing on as a critical issue this year. Grant Thornton’s Hughes agrees. “As businesses engage in digital transformation and make use of open networks and other future-ready services from banking partners, they will be exposed to new and diverse risks and cybercrime,” Hughes notes. “Leaders must balance decisions about adopting advancing digi-tal technology and banking solu-tions with the risks inherent in these opportunities.”

  Treasury technology. Exter-nal volatility and uncertainty make it even more important for treasury functions to gain better visibility into their cash positions. This need, BELLIN’s Schlecht emphasizes, is driving treasury functions to evaluate

new or upgraded treasury man-agement systems. Payment complexity—driven by global growth, foreign exchange vol-atility, payment advances, and the growing threat of fraud—is challenging existing treasury technologies. “Treasury, A/P, and IT groups now have to sup-port an escalating level of com-plexity with limited resources,” Jeffery says. “They know they shouldn’t have to solve the same problem in four or five dif-ferent underlying systems.”

  Talent. New cloud-based solu-tions, application program-ming interfaces (APIs), open banking, and robotic process automation (RPA) all require new skills. “Bank APIs, en-abling real-time updates of bank balances and transaction data, and machine learning applications for better forecast-ing and fraud detection are re-shaping the treasury function,” Sreepada says. According to Hughes, the implementation of some of these advanced technologies creates a talent challenge for many traditional treasury functions. “New re-quired skill sets have emerged,” she says, noting that treasury

treasuryandrisk.com NOVEMBER 2019 SPECIAL REPORT TREASURY & RISK 7

(continued on page 10)

The world around us has transformed radically and a digital revolution is underway

in treasury. We are in a period of rapid change, constantly wondering what our computers can do for us today. How does this impact a day in the life of corporate treasurers? Will human treasury be replaced by robots in the near future? Artificial Intelligence (AI) and Machine Learning (ML) are set to transform and optimize treasury operations.

Back to the futureAI is not new - it has been around for nearly 70 years and began with Alan Turing’s Test and the establishment of the field of AI.

In 1990 the prominent futurist and AI expert Ray Kurzweil extrapolated the performance of chess software to predict that computers would beat the best human players “by the year

2000”. The power of AI and ML has been demonstrated by the trajectory of chess computers since Deep Blue beat Garry Kasparov in 1997.

The journey of chess computers in the last 20 years illustrates how far artificial intelligence has come, and how even an apparently unbeatable chess program can be outclassed with the use of a deep learning algorithm. This is just one example of how machine learning is uncovering new strategies.

We humans have realized that computers were able to outperform us in many ways: processing power for performing calculations, memory storage, and searching vast amounts of data and possible outcomes. With more powerful computers and the ability to process huge amounts of data, new application areas will arise, as we see now in treasury. This

journey demonstrates how embracing deep learning can bring benefits beyond what can be achieved by either humans or computers individually, ultimately transforming how a particular problem is approached. By adopting AI, companies can go on their own transformational journey and discover how they can collaborate with technology to improve their performance and add more value than ever before.

How can artificial intelligence help treasury teams? With the power of ML and AI, treasury teams can become more effective and add more value to the businesses they serve. AI has many use cases in Treasury. Organizations can derive monetary gains, better prepare and plan, and validate data using AI. Also, with these tools,

The artificial intelligence and machine learning revolution

A BRIEF HISTORY OF ARTIFICIAL INTELLIGENCE

Artificial Intelligence (AI) is not new - it has been around for nearly 70 years! It all started out with the Alan Turing Test and the establishment of the field of AI. With more powerful computers and the ability to process huge amounts of data new application areas will arise, as we see now in treasury.

1950: Alan Turing introduces the Turing Test, a test that challenges whether a machine can “think”

1956: At the Dartmouth Conference, the field of AI is launched and the term “artificial intelligence” is coined

1960: Psychologist Frank Rosenblatt’s work on perceptrons lead to the development of the Mark I Perceptron, the ‘first computer’ that learned skills by trial and error

The late 1970s and 1980s were known as “The Winter of AI” a time of reduced funding and interest in the field

1988: British scientist Rollo Carpenter creates Jabberwacky, a chatbot designed to carry out conversations with users and intimate human interaction

1997: IBM’s Deep Blue Computer beats Garry Kasparov, reigning world chess champion, in a game of chess.

Late 1990s: Dr. Cynthia Breazeal of M.I.T designs KISMET, a robot head that can recognize and replicate human emotions.

1978/79: SCARA, a robotic arm used in assembly lines, is created in Japan, and thereby allows for high-speed automated assembly

1950s 1960s 1970s 1980s 1990s 2000s 2010s

Late 2000s: IBM introduces Watson, a question answering computer system that is able to answer questions posed in a natural language. Like IBM’s Deep Blue, Watson went on to beat the top two Jeopardy! contestants.

2011: Apple launches Siri, an intelligent personal assistant.

2016: Google DeepMind’s AlphaGo beats the European Go champion Fan Hui 5:0 and the Korean Go champion Lee Sedol 4:1

treasury teams can be relieved from performing mundane, tedious tasks, allowing them to be a more strategic player and operate in new and more effective ways.

ML and treasury management systemsCash forecasting is a key priority for most organizations. With large volumes of data, detecting historical trends and patterns can be impossible for the human eye. ML can help them navigate through all this information to automate and improve cash forecasts.

There can be a lot of internal or external events at an organization that can instantly require them to change their cash forecasts. For example, events such as a company merger, an unexpected drop or rise in sales numbers, or an unanticipated event or huge surplus in the coming months. While the machines are providing the cash forecast on historical data, at a certain point the treasury team needs to communicate with the machines to add insider and current day information to produce the best outcome for the forecasts. ML can expedite the cash forecasting process. Instead of having many people in subsidiaries creating manual and probably biased forecasts, the AI will create a forecast for the whole group in seconds based on the data. The AI is not only faster, but more accurate. Additionally, organizations may use ML algorithms to validate, and cost-effectively implement a cash forecast. This is just one example. We foresee additional use cases that could

dramatically reduce implementation costs and time to market of a TMS.

Are the robots taking over Treasury? Human treasury will not be replaced by machines and robots in the near future. It is the humans that are interpreting and understanding data and what is working with multi-dimensional volume-based tasks such as payment or hedging and developing new strategies, not the computers. The human should be less involved with repetitive, manual tasks and will be supported by AI to help them get more insights. We should embrace what we can learn from new insights that AI brings and use that information to improve our own performance. Ultimately, the combination of machines and humans will collaborate to produce better results, each bringing their superior skills to the partnership.

Preparing for the futureDigital revolution – we’ve all heard about it and about the significance for the future of treasury systems. Many technology providers have the vision to apply the power of AI and ML to help treasury professionals become more effective and add more value to the businesses they serve. At ION Treasury, the future is here. In 2019, ION was the first to provide its customers with ML capabilities directly within the TMS, marking a significant innovation milestone in TMS technology. This work has been years in the making and is the result of a long-term partnership with a major university, machine learning

experts, and the ION Treasury community.

We are proud to take a leadership position, and to be at the vanguard of providing machine learning capabilities in TMS solutions. And we believe the future of treasury has never looked brighter.

iongroup.com/treasury treasury@iongroup.com

2019, ION is the first to provide its customers with machine learning capabilities directly within the Treasury Management System.

Definitions:Artificial Intelligence (AI) is the study of how to make computers do things at which, at the moment people are better. (Elaine Rich, 1983)

Machine Learning (ML) is a subset of AI and the ability to learn without being explicitly programmed

Deep Learning (DL) is a subset of machine learning and is inspired by the function of the human brain (neural network)

ARTIFICIAL

MACHINELEARNING (ML)

INTELLIGENCE (AI)

DEEPLEARNING

(DL)

functions “will need to respond by changing role definitions, performance expectations, and hiring plans.”

  Banking relationships. Some treasury consultants point to declining levels of satisfaction with banking partners’ pay-ments-related services. Given the need for increased speed and treasury functions’ drive to improve end-to-end payment processes, some banking rela-tionships are “creating levels of friction not seen in recent times,” Jeffery observes.

Adjusting Investment Priorities and Policies

Given the variety of internal and external issues currently challenging cash management activities, it is not surprising that corporate treasurers continue to favor approaches and in-vestment allocations that safeguard principal and increase immediately available liquidity.

The investment priorities that this year’s survey respondents identified are notable in that they illustrate an even stronger desire to protect prin-cipal—that is the top short-term in-vestment goal in this year’s results (and the third-highest priority in the 2018 results). The proportion of respondents who selected “eliminat-

ing any chance of lost value in prin-cipal” as their top priority doubled in 2019. “Understanding and mitigating the impact of geopolitical uncertain-ty” is also the top priority for a far larger proportion of 2019 respondents (16 percent) than 2018 respondents (6 percent). “I think the priority of ‘eliminating any chance of lost value in principal’ may move even higher if uncertainty in the business climate increases over the coming months,” Nguyen says. See Figure 4.

As treasury groups in global com-panies work through these priorities, they are not planning to repatriate a lot of funds. Among the respon-dents whose companies have cash or short-term investments overseas, 64

10 TREASURY & RISK NOVEMBER 2019 SPECIAL REPORT treasuryandrisk.com

STOCKPILING CASH (cont’d from page 7)

2019 weighted ranking

2019 - % respondents selecting as 1st priority

2018 weighted ranking

2018 - % respondents selecting as 1st priority

Eliminate any chance of lost value in principal 1 43% 3 20%

Maximize liquidity available immediately 2 16% 1 29%

Maximize yield 3 19% 2 31%

Minimize counterparty credit risk 4 2% 5 2%

Understand and mitigate impact of geopolitical uncertainty

5 16% 6 6%

Minimize currency impact on cash earned abroad 6 5% 4 12%

Figure 4: Over the next year, how will your organization prioritize each of the following goals for cash and short-term investments?

Source: “2019 Cash Management Survey,” Treasury & Risk.

percent indicated that the proportion they hold abroad will not change sig-nificantly over the next year. Sixteen percent of respondents expect to make a small reduction in cash held abroad, 15 percent a significant reduction, and 5 percent plan a small increase.

Not surprisingly, most companies (66 percent) are storing most of their cash in bank deposits, including CDs and time deposits. When it comes to oth-er investment vehicles, the most popular options are prime money market funds (MMFs), government/Treasury money funds, and Treasury bills; they hold at least 10 percent of cash and short-term investments for 32 percent, 21 percent, and 23 percent of respondents, respec-tively. “Risk aversion features promi-nently in terms of where the companies choose to hold their deposits and invest-ments,” Nguyen notes. “Despite the low yield, companies are not deviating far from their traditional bank deposits and money market investments.”

ION’s Sreepada finds it interesting that about a third of companies are holding at least 10 percent of their short-term investments in prime MMFs. “Mon-ey flowed out of prime funds in 2016, when the floating NAV [net asset value] was introduced,” she points out. “Now it appears that companies are more open to these investments. As more and more companies explore MMFs as investment options, they should look to

invest in these securities electronically. Doing so can save time, improve accura-cy, and automate maintenance of these investments, which eases complexity of managing floating-NAV funds.”

Most treasury functions are stand-ing pat when it comes to making chang-es to investment policies for cash and short-term investments. The policy ad-justments (conducted in the past three years) that 2019 survey respondents cited most frequently track closely to the policy adjustments that 2018 re-spondents identified. In fact, the most common response (cited by 41 percent of 2019 respondents) is that their com-pany has not changed its investment policy at all. The other frequent policy changes in the 2019 survey include:

  Eliminated prime money funds as cash investment option (20 percent);

  Added new asset classes (14 percent);

  Increased enforcement of investment policy (13 percent);

  Shortened allowable maximum maturities (11 percent); and

  Raised minimum credit rating for counterparties (9 percent).

Treasury teams should not lose sight of the fact that even bank deposits car-ry some risk, Sreepada emphasizes. “Corporate investment policies haven’t

changed significantly, and companies appear to be keeping investment tenors short,” she notes. “They are investing primarily in short-term instruments or keeping cash in banks. But keeping cash in banks introduces the critical need to understand counterparty exposures.”

Despite the growing uncertainty complicating cash management deci-sions, corporate treasurers can count on a couple of sure things. First, signals concerning the global business environ-ment’s future trajectory will sharpen in the coming months. The International Monetary Fund recently reduced its pro-jection of world economic growth in 2019 from 3.6 percent to 3 percent, the lowest growth rate since the financial crisis. And second, the noise will get louder.

As such, Nguyen suggests that treasury functions “seize the mo-ment” by making the process im-provements and technology invest-ments they need to help “achieve greater efficiency, visibility, connec-tivity, and security”—all of which will be extremely practical when the downturn arrives.

Eric Krell’s work has appeared pre-viously in Treasury & Risk, as well as Consulting Magazine. He is based in Austin, TX.

treasuryandrisk.com NOVEMBER 2019 SPECIAL REPORT TREASURY & RISK 11

• Assessing the Impact of the Fed’s Interest Rate End GameScenario planning helps treasurers prepare corporate credit facilities for future movement in rates. Here’s how to run the analysis.

• The Importance of a Treasury Acquisition Strategy6 steps for developing a framework to fold acquisitions into the corporate treasury function.

• A Total Rundown of Treasury Management System CostsBest practices for quantifying TCO on prospective investments in treasury technology.

• Still Ignoring the Risks Inherent in Bank Deposits?Smart treasurers are rethinking cash investment policies and counterparty risk frameworks held over from the “too-big-to-fail” era.

• Currencies in 2019: Expect the UnexpectedThe top factors expected to impact currency markets in 2019—and how to prepare for events you can’t predict.

• Incorporating Expectations into Hedging DecisionsHow interest rate risk management should change in response to inversion of the Treasuries yield curve.

• Companies That Don’t Modernize Payments May Be Left BehindTreasury teams need to make sure their company is taking these specific actions to bring payment processes into the digital age.

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