Cash management has made its way into becoming a key competency for leadership teams in protecting their companies’ overall long-term health.
“Companies in all sectors are quickly becoming attuned to what they’re earning on their cash – and concerned about the cost of their floating rate debt,” said Joseph Quinn, director of liquidity and cash at treasury solutions provider Hazeltree.
Moreover, current market conditions drive private fund managers to hone in on their cash management practices, with many turning to strategies more commonly used by their corporate counterparts.
Private fund firms are now putting idle cash to work in money market funds (MMFs), which has the dual benefit of earning a yield from cash holdings in addition to mitigating concentration risk.
Quinn also observed that there has been an increase in the number of their private fund clients that are re-evaluating their banking relationships and examining capabilities that can help them mitigate risk while putting excess liquidity to work.
Money market funds are “particularly attractive” as they generate yield on idle cash and are highly liquid, according to Quinn.
“They have an investment manager selecting the securities that are purchased by the MMF and assets are held in a custodial account for the benefit of the shareholders. MMFs charge a standard investment management fee and deduct other expenses from the overall pool of assets. These expenses generally range from 15 to 20 basis points per annum on the institutional class of shares,” Quinn said.
The Hazeltree liquidity director also pointed out that companies planning to expand their cash management practices and include strategies like leveraging money market funds need to consider if their treasury operations systems are robust enough to keep up with the demands of running an efficient cash management program to maximise benefits.
Cash management platform
“Implementing a more robust cash management strategy as part of overall treasury management requires careful planning and the right tools,” Quinn said. “For example, the ideal platform can provide a fully automated sweep process that seamlessly connects bank, custodian and broker dealer accounts with yield-enhancing MMFs.”
Quinn explained that this platform has a two-fold benefit: The first is significant gains in efficiency as firms can automatically direct excess cash into their preferred money market funds or bank accounts and streamline cash withdrawals with the goals of mitigating risk and maximizing return and wallet share built in.
The second benefit is improved risk management. Outdated processes for keeping track of cash balances are ripe for counterparty and operational risk, underscoring the importance of technology as a risk mitigation tool.
“Today’s environment is pushing many firms to take a step back and evaluate their cash management programs as part of an overall strategy to profit from current market conditions. Adding tools to a treasury department’s arsenal, like the ability to easily and efficiently invest in MMFs, is more critical than ever,” Quinn said.
