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Cash management: Safety first in short-term investment

The credit crisis is prompting corporate treasuries to make efficient use of their cash. But it has also thrown up doubts about how secure short-term investment vehicles such as money market funds are. Laurence Neville reports.

Centralization, standardization and consolidation


LIQUIDITY MANAGEMENT, WHICH includes the mechanics of moving money between subsidiaries as well the investment of that cash, has become immeasurably more important to corporate treasurers in the past year. As credit has become scarcer – and a global economic slowdown has loomed – corporates’ focus has inevitably turned to maximizing the efficient use of their existing cash.

The simplest way to increase working capital is to increase the speed with which cash moves in a company. Using physical cash concentration and notional pooling, leading banks can now perform near-wonders: netting long and short positions across different global accounts – including those subject to exchange controls – in order to minimize a company’s overdraft costs and maximize funds for investment.

However, it is what happens at the end of that process – short-term investment – that has taken centre stage in recent months. The turmoil in the banking sector has led to a wholesale reassessment of the risks of leaving excess funds in bank deposits. Meanwhile, the rush into government bonds, a common alternative investment, has lowered yields to unattractive levels.

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