A changing landscape

Matthew Gallacher looks at how alternative corporate treasury solutions, alongside automated tools, have become an increasing necessity in enabling treasurers to maximise the use of liquidity in the higher interest rate environment.

Money market funds

Corporate treasury functions are increasingly making use of money market funds (MMFs) – mutual funds that invest in near-term instruments such as cash equivalent securities, offering high liquidity with low levels of risk – for their short term liquidity requirements.

MMFs allow treasurers to diversify counterparty risk on excess balances by spreading their investments across different providers, while typically delivering stronger yields than a current account and keeping funds readily available – often allowing instant access to funds on the same day as settlement.

Increasingly, MMFs can be accessed through online portals, providing a gateway to an extensive range of digitised money management services and products. This allows clients to make, view and manage investments at the touch of a button.

Money market funds returns 2016 – 2023

Comparator is Sterling Overnight Index Average Rate (SONIA).

Source: BlackRock - Institutional Cash Series March 2024^

Alternative off-balance sheet investments

Another asset class attracting interest from our treasury clients during the rate hike cycle has been government debt, specifically treasury bills and gilts, where we have seen significant inflows both through direct execution and managed portfolios. The diversified portfolios being managed on behalf of treasurers provide a long-term view, aiming to generate strong, risk-adjusted returns.

These assets are considered safe havens during times of turbulence and inflows have also increased as a result of financial market events and geopolitical uncertainty. Bonds in general have started to look appealing again due to higher rates of return and we’ve seen an increase in deals in this space, especially for managed portfolios.

Automated treasury management

With many corporate treasury teams shrinking in recent years, there is an even greater need to ensure management of liquidity is as seamless as possible. Automated digital solutions are set to become increasingly important in helping to pursue the goals of yield, security and liquidity when it comes to investment of deposits.

These solutions give treasurers access to a single, easy-to-use online platform to manage all their investment needs in the same place with just a few clicks, and without the need to place deposits by phone or use legacy systems.

The ability to connect these platforms with their own treasury management system via an application programming interface (API) is high on the agenda for sophisticated treasury functions, as it enables seamless liquidity management across banking providers.

The higher interest rate environment has showcased the importance of automated digital solutions that provide treasurers with an array of investment options. This has been a steep learning curve for many businesses, which have had to review or create treasury and investment policies to ensure they continue to maximise yield, security and liquidity.

However, the adoption of these solutions should stand treasury teams in good stead in managing future changes in interest rates at speed where required.

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