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Spotlight on Cash Management March 2009 Safety-first approach to investing cash David Li Director, Liquidity and Investments EMEA, Treasury and Trade Solutions, Global Transaction Services, Citi I am pleased to introduce our March edition of Spotlight, which considers how effective cash management for the life and pensions industry, asset managers and other non-bank financial institutions has become more important than ever. The credit crunch has affected the way surplus funds are invested. Additionally, intensifying cost pressures have put a premium on the efficient processing of payments. Firms need to look at clever solutions on both sides of the cash equation. Below are two articles that examine how managers in the life, pensions and investment management community can manage their respective sides of the cash equation. David Li, Director, Liquidity and Investments EMEA, Treasury and Trade Solutions, Global Transaction Services, considers why effective liquidity management is core as managers look to protect their clients against the tumultuous market we currently reside in. On the other hand, Yalin Alakoc, the EMEA Market Manager for WorldLink ® Payment Services, part of our Treasury and Trade Solutions group, advises us on how life, pensions and health insurance industries can streamline their overseas payments. When it comes to investing surplus cash holding, investment firms’ priorities have changed: risk management now tops the list: Safety — How much risk is the investor prepared to accept? Preservation of capital — Is this essential? Liquidity — Is daily liquidity required? For what percentage of the invested funds? Expected return — What yield is the investor looking for? The ongoing financial crisis has led investors to re-evaluate the important of each of these factors and to revisit their investment decisions accordingly. However, many asset managers and insurers are currently sitting on record amounts of cash. The challenge all of these firms face is where and how to invest it. It is not just the collapse in interest rates that concerns them. Following the demise of Lehman Brothers last year, and well- publicised problems throughout the banking industry, security is uppermost in many minds. Expected returns are now some way down the list of priorities. Safety comes first. As a consequence, many big investors have been focusing their attention on government instruments or placing short duration deposits with the big money centres or universal banks. One other trend is noticeable. Diversification is now the name of the game. Investors want to spread their money around. Whereas previously investment allocation may have been largely determined by factors such as maintaining a positive relationship with key banks as well as a focus on yield and pricing, the awareness of counterparty risk has to some extent overtaken the sense of reciprocity. In addition to the counterparty risk posed by recent bank failures, other types of risk have also come to the fore. Now, the following questions are being asked: What would happen if an investment collapsed: are governmental or other guarantees in place? What recourse would the investor have? What jurisdiction would any insolvency be under? Is the investment ring-fenced? In order to make the right investment decisions investors must balance all of these needs. To achieve this, it is essential to have maximum visibility over your cash, with high speed solutions and analytics that will enable them to make business decisions quickly and effectively. As a result, more and more managers are turning to online investment portals, which allow them to invest with a spread of counterparties — but through a single access channel. Many of these portals are run by technology companies and tend to focus on a single investment option such as time deposits or money market funds. But it is important to choose one that offers a breadth of investing options. This not only simplifies the investing process but also allows a consolidated view of a firm’s cash investments. Citi’s Online Investment (OLI) portal covers 21 countries, 18 currencies and a range of instruments. In addition to Citi deposits, these include more than 30 AAA-rated money market funds in euro, sterling and US dollars from nine different fund families. All have had to demonstrate good due Introduction Richard Ernesti Managing Director, Global Head of Investor Services Global Transaction Services, Citi

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Page 1: Spotlight - Citibank · Spotlight on Cash Management March 2009 Safety-first approach to investing cash David Li Director, Liquidity and Investments EMEA, Treasury and Trade Solutions,

Spotlighton Cash Management

March 2009

Safety-first approach to investing cashDavid LiDirector, Liquidity and Investments EMEA,Treasury and Trade Solutions, Global Transaction Services, Citi

I am pleased to introduce our March edition of Spotlight, which considers how effective cash management for the life and pensions industry, asset managers and other non-bank financial institutions has become more important than ever.

The credit crunch has affected the way surplus funds are invested. Additionally, intensifying cost pressures have put a premium on the efficient processing of payments. Firms need to look at

clever solutions on both sides of the cash equation.

Below are two articles that examine how managers in the life, pensions and investment management community can manage their respective sides of the cash equation.

David Li, Director, Liquidity and Investments EMEA, Treasury and Trade Solutions, Global Transaction Services,

considers why effective liquidity management is core as managers look to protect their clients against the tumultuous market we currently reside in. On the other hand, Yalin Alakoc, the EMEA Market Manager for WorldLink® Payment Services, part of our Treasury and Trade Solutions group, advises us on how life, pensions and health insurance industries can streamline their overseas payments.

When it comes to investing surplus cash holding, investment firms’ priorities have changed: risk management now tops the list:

Safety• — How much risk is the investor prepared to accept?

Preservation of capital• — Is this essential?

Liquidity • — Is daily liquidity required? For what percentage of the invested funds?

Expected return• — What yield is the investor looking for?

The ongoing financial crisis has led investors to re-evaluate the important of each of these factors and to revisit their investment decisions accordingly. However, many asset managers and insurers are currently sitting on record amounts of cash. The challenge all of these firms face is where and how to invest it.

It is not just the collapse in interest rates that concerns them. Following the demise of Lehman Brothers last year, and well-publicised problems throughout the banking industry, security is uppermost in many minds. Expected returns are now

some way down the list of priorities. Safety comes first. As a consequence, many big investors have been focusing their attention on government instruments or placing short duration deposits with the big money centres or universal banks.

One other trend is noticeable. Diversification is now the name of the game. Investors want to spread their money around. Whereas previously investment allocation may have been largely determined by factors such as maintaining a positive relationship with key banks as well as a focus on yield and pricing, the awareness of counterparty risk has to some extent overtaken the sense of reciprocity.

In addition to the counterparty risk posed by recent bank failures, other types of risk have also come to the fore. Now, the following questions are being asked: What would happen if an investment collapsed: are governmental or other guarantees in place? What recourse would the investor have? What jurisdiction would any insolvency be under? Is the investment ring-fenced?

In order to make the right investment decisions investors must balance all of these needs. To achieve this, it is essential to have maximum visibility over your cash, with high speed solutions and analytics that will enable them to make business decisions quickly and effectively. As a result, more and more managers are turning to online investment portals, which allow them to invest with a spread of counterparties — but through a single access channel.

Many of these portals are run by technology companies and tend to focus on a single investment option such as time deposits or money market funds. But it is important to choose one that offers a breadth of investing options. This not only simplifies the investing process but also allows a consolidated view of a firm’s cash investments.

Citi’s Online Investment (OLI) portal covers 21 countries, 18 currencies and a range of instruments. In addition to Citi deposits, these include more than 30 AAA-rated money market funds in euro, sterling and US dollars from nine different fund families. All have had to demonstrate good due

IntroductionRichard Ernesti Managing Director, Global Head of Investor ServicesGlobal Transaction Services, Citi

Page 2: Spotlight - Citibank · Spotlight on Cash Management March 2009 Safety-first approach to investing cash David Li Director, Liquidity and Investments EMEA, Treasury and Trade Solutions,

diligence processes. If a client wishes to make contact with one or more of the managers, Citi will facilitate a meeting.

Clients can access the end-to-end investment process — assessing performance, receiving quotes and placing orders — paying either through a Citi or third-party bank account. Booking and settlement of orders is instantaneous. Once invested, they can see all their positions on one screen, allowing them to analyse them in terms of ratings, yield and average maturity. Compared with ringing round many

different money managers, investors achieve huge savings in time and effort.

OLI can be accessed through CitiDirect® Online Banking and TreasuryVision®, Citi’s online liquidity management tool, which allows clients to consolidate control not only of their Citi accounts but also those they have with third-party banks, too. That means Citi clients can consolidate their OLI investments within the global overview TreasuryVision provides. The result is enhanced visibility and control.

There is one further reason for firms to use an investment portal run by their transaction bank. The business executed via the portal will most likely be taken into account when the bank comes to price other services. At Citi, for instance, clients receive a double relationship credit in return for the spread they pay on OLI. They therefore achieve diversification, transparency and control — key goals for any investment manager at the present time — in a most cost-effective manner.

Global Transaction Serviceswww.transactionservices.citi.com

© 2009 Citibank, N.A. All rights reserved. The information and materials contained in these pages, and descriptions that appear, are subject to change. Any unauthorised use, duplication or disclosure is prohibited by law and may result in prosecution. Citi and Arc Design is a registered trademark and service mark of Citigroup Inc. or its affiliates, used and registered throughout the world. Citibank, N.A. is incorporated with limited liability under the National Bank Act of the U.S.A. and has its principal business office at 399 Park Avenue, New York, NY 10043, U.S.A. Citibank, N.A. London branch is registered in the UK at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, under No. BR001018, and is authorised and regulated by the Financial Services Authority, VAT No. GB 429 6256 29. Ultimately owned by Citigroup Inc. New York, U.S.A.G

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Streamlining overseas paymentsYalin AlakocEMEA Market Manager, WorldLink Payment Services,Treasury and Trade Solutions, Global Transaction Services, Citi

Outsourcing foreign benefit payments and associated statements can deliver big cost savings for insurers.

For the life, pensions and health insurance industries, large volumes of cross-border payments are a fact of life. Rising wealth and increasing ease of relocation have encouraged large numbers of retirees to settle outside their home country. Any system for managing the payment of pensions, annuities and health claims must now routinely take the expatriate community into account.

This poses special challenges. Customers will not thank their annuity provider for sending them ‘home’ currency cheques that are costly to clear. But for the provider, maintaining multiple bank accounts in different countries and currencies is an expensive business. It is further complicated by varying rules for payments in some parts of the world. Above all, process efficiency is vital in keeping cost down and delivering customers a reliable service.

Citi’s WorldLink® Payment Services provide a convenient, non-account-based solution that allows pension schemes and insurers to outsource their multi-currency payments in the most efficient manner possible. There is no longer any need to maintain

multiple currency accounts — with all the idle balances and costly foreign cheque production they entail. Clients are simply debited in their home currency on a once-and-for-all-basis. There is one reconciliation process no matter how many different currencies are involved.

Using Citi’s global network, WorldLink can make funds transfers in 137 currencies. It can print and despatch remote cheques in 32 currencies. It also gives clients the option to produce their own cheques (printed via CitiDirect Online Banking) on-site in 16 different currencies. Cross-border ACH payments are available in 11 different currencies and 21 countries — with more on the way. And if end-customers can only receive cash, that is available in 220,000 locations worldwide.

In short, unless a customer requires payment in cowrie shells, WorldLink can deliver it. And it will deliver it with whatever payment advice — incorporating tax deducted or cost of FX — a client requires. All of this is completed in a seamless, end-to-end process. WorldLink can be accessed in a variety of ways. The most effective is through host-to-host file delivery that transmits both cheque requests and explanation of benefits information directly.

Recipients benefit in two ways. First, they are likely to receive a better FX rate since the provider will have been able to negotiate a bulk rate. Second, there should be no unusual cheque collection charges as the cheque they receive is a local currency instrument.

WorldLink delivers new flexibility to treasury departments, which are often the last to learn of changing requirements. New overseas payment needs can be met quickly — without the hassle of having to open new accounts. Processing costs are minimised. Exposure to fraud is similarly reduced: providers no longer have cheques going through their mailroom.

With 25 years of experience, WorldLink is a tried and tested solution. It has been steadily developed in scope and is used by more than 4,000 clients based in over 150 countries. Combined, they make 25 million payments a year, in excess of US$700 billion. State pension payments, annuities and health benefits make up a large proportion of the total. WorldLink is one of the most convenient ways of processing high-volume FX funds transfers, reducing costs and risks, streamlining processing and delivering end-recipients the best deal possible.