Beyond the numbers

How treasurers are using our platform; key trends, themes and figures from our multi-billion dollar portfolio

2022 was quite the year; we finally saw the end (touch wood) of the coronavirus pandemic, the revolving doors stopped spinning (for now…) at 10 Downing Street and Lionel Messi finally got his hands on the World Cup trophy. A lot went on at TreasurySpring too; we saw a 100% staff increase, grew our client base by 80% and AUM rose by 2.6x – you can read more about our year in our annual review.

I wanted to paint the picture behind the numbers; what did treasurers do on the platform? How did they manage their cash? What were the themes, trends and figures behind our multi-billion dollar portfolio that is now invested via TreasurySpring? Talking to treasurers daily, I know that understanding the latest developments and what peers are doing is key to a forward-thinking department, so I thought it would be worth delving into these numbers. Of course it is important to understand these numbers are at a point in time; a snapshot and that we see flows in and out of different products throughout the year; but this end of year position gives a good idea of what we have seen. As ever, happy to pick up the phone to chat!

Breaking it down

The make-up of currently issued FTFs highlights that the ability to diversify between banks and access homes away from banks, is a real and valuable offering. Nearly a quarter of all cash invested via the platform is done so within the Supra, Sub-Sovereign and Agency (SSA) market. These are homes for cash that treasurers typically do not have the ability to access; being able to provide a simple, regulated way to enter this market has enabled 100s of treasurers to place cash with highly rated, often government owned, institutions – offering very attractive risk-adjusted returns. Furthermore, we still see strong flows into US/UK T-Bills – emphasising that being able to access the closest thing to a risk-free rate is a very useful tool in a treasurer’s armoury. You can read more about what this means and how we have achieved it here.

Naturally, placing money with banks remains the most popular choice on the platform – with around 72% of total cash invested. Though, what has been interesting to see is the variety of banks chosen – cash has been invested across 22 different banks, all with credit ratings ranging from A- to AAA. We haven’t simply seen a flocking to the highest returning bank, more of a weighted spread across a diverse selection.

Broken barriers

TreasurySpring was founded, in part, to breakdown the entry barriers to the repo market and enable the 99% of treasurers, who might not have the size, scale and time required to access these products directly, to do so in a standardised and regulated fashion. The benefits of this are clear and manyfold, and we talk more about those here.

The fact that we, as of now, see 40% of Financial FTFs as secured, showcases that repo isn’t just for the large, financial institutions who are able to access directly. With the barriers taken down through our technology, connectivity and infrastructure, treasurers of corporates and other businesses are now able to benefit from some of the safest homes for cash on the planet. Not only that, but the way in which a repo funds a bank’s balance sheet is often more favourable from a regulatory standpoint than plain deposits – which in turn can lead to higher rates! A win-win; treasurers get to benefit from higher risk-adjusted (and outright) returns, whilst banks can achieve higher value from the cash on their balance sheet.

Currency split

Fixed-Term Funds offer the unique quality that they can be wrapped around, quite literally, any currency you care to think of. If issuers are issuing it, it can be available in FTFs. One thing that this split says to me is that the Euro is back; after years in the wilderness and negative interest rates, it has now become a currency worth holding once again. The EUR has certainly had quite the history, keep an eye out for a blog reviewing the EUR’s tumultuous decade in the near future… What these figures don’t show are the non-core currencies currently live on our platform; we are currently showing FTFs in CAD, AUD, PLN and ZAR. Although balances in these currencies are small right now, you can be sure this list will grow and amounts will increase, as we continue to help treasurers with pockets of cash in other jurisdictions across the globe.

Buckets of maturity…

Treasurers are always going to need to keep cash on hand to some degree – with a portion of their overall balance sitting in same day access products, to deal with the fluctuating levels of working capital. This of course hasn’t changed. What has changed in the last 12 months, is the opportunity cost of not terming cash when you have the ability to; we have a curve again! Rising interest rates across the three core currencies has led to higher yields from term products – especially where expected interest rate rises are priced in. If treasurers find themselves week in, week out, month in, month out, with significant cash in same day access products – with balances never falling below a certain level – they are effectively paying for liquidity they don’t need.

The fact that the most popular bucket on our platform is 3m, highlights that treasurers are looking for ways to maximise return on their cash holdings whilst maintaining cash and cash equivalence status. It is no coincidence that as we continue to see the emergence of new and improved cash forecasting technologies – and greater adoption by treasury teams – that more treasurers find themselves terming cash.

Of course, we may soon be approaching a flattening interest rate environment (although, not if you listen to our CPO in his latest FTF article here). Do we expect then, that the benefits of terming cash will wane and the difference in yield between ‘on call’ accounts and term products will lessen? No, not at all. Why? This is because the yield premium associated with terming cash is multifaceted and isn’t purely based on future rate expectations. These expectations are of course ‘baked in’ (to varying extents, in differing products, discussed more here), but banks pay up for this cash for several reasons; some more obvious than others.

There is the regulatory capital factor to consider; Net Stable Funding Ratios, set out in the Basel III regs, dictate that longer term cash is more valuable to a bank’s business model and thus they will often pay a premium for it. Along with this, there are Liquidity Coverage Ratios that banks need to adhere to – which again makes longer term deposits more attractive for them. Then there is also a credit premium to consider; whenever businesses place money with a counterparty, they are taking credit risk with that counterparty. So, the longer the business places money with that counterparty for, the more credit risk they are taking on them – and the higher the rate they should get. Now when investing via TreasurySpring, clients will only ever be with high quality counterparties, often on a secured basis – so clients can benefit from increased yield by terming, without materially affecting this credit exposure.

To answer my own question again, will we see the value of terming cash go away, given a flattening interest rate environment? Emphatically: no

Summary

There is always plenty you can take away from looking at stats and reviewing data – this is no exception. After looking at the profile of cash invested via TreasurySpring, I think it boils down to three key takeaways:

1. Diversification matters

• Accessing the SSA market has proved extremely popular, with their high ratings and competitive returns it is perhaps no surprise.
• No one issuer is being flooded to; the 72% of cash that is invested in banks is spread between 22 different homes.

2.  If you can term cash – the benefit is clear

• Being able to spread between multiple different maturity buckets in one portal, has been key to treasurers using TreasurySpring.
• There are gains to be had if you can term. Check the rates out here.
• Improving cash forecasting functionality is providing the ability to term cash.
• 3 months offers a sweet spot for treasures: enough liquidity to feel comfortable whilst offering enough pick up in yield and maintaining cash and cash equivalence status.

3.  Returns are important, risk adjusted returns are more so

• Repo provides the ability to pick up significant return, whilst offering materially less risk than unsecured products with the same counterparties.
• Our clients haven’t just been picking and choosing between the out and out highest yield issuers; there is a clear trend to look at returns on a risk adjusted basis.

This year?

It’s always exciting to think about where we could be in 12 months’ time – 2022 saw the return of the all-weather asset class, what will 2023 bring to the table? My betting is we will see a continued focus on quality, whilst more clients explore how to make their money work harder within the sanctum of their treasury policies. As cash forecasting technology improves, and a greater focus on the additional value a progressive treasury function can bring, we could see more businesses willing to term cash; ultimately stopping paying for liquidity they don’t need. How ESG integrates itself further into a treasurer’s day to day will be interesting – do not be surprised to see a section on the cash invested in sustainable FTFs here in 12 months’ time.