Treasury & Cash Management: Liquidity & Investment Management


Companies continue to bank on safety and security in managing liquidity and investments.

The long road At the end of this year’s first quarter, cash and short-term investment balances among the nonfinancial firms of the S&P 500 hit a record $1.29 trillion, according to data provider FactSet Research Systems. That’s up more than 60% from the levels five years ago.

Even as firms’ cash balances grow to eye-popping levels (see our GF Cash 25 feature ), financial execs charged with managing these funds remain focused on safety and liquidity. “If there’s no principal, there are no returns,” points out Lisa Rossi, global head of structured liquidity products, GTB, Deutsche Bank.

Although Mark Eisele, CFO with Applied Industrial Technologies, has periodically turned to money market funds as investment vehicles, he has consistently shied away from prime funds. “We’re not searching for extra returns,” he says. “Not then [pre-crisis], not today.” In fact, Eisele is currently keeping most of his short-term funds in deposit accounts. The reason? “Banks are providing an earnings credit rate that’s higher than the money market fund rate,” he notes.

The low rates do have their upside, of course. Atlas Air Worldwide was recently able to secure long-term financing for four aircraft at under 2%. “This rate environment has allowed us to draw significant leverage at historically low rates,” notes Ed McGarvey, VP and treasurer at the airfreight outsourcing firm.

But for investing excess cash the name of the game is still safety and security—not returns. As part of this focus, finance executives are paying ever more attention to risk assessment. “The single biggest theme since the financial crisis has been an increased focus on counterparty risk,” says Paul LaRock, principal with consultancy Treasury Strategies. While many companies’ investment policies already limit the percentage of funds that could be invested with any single counterparty, asset allocation has become more critical to an organization’s investment strategy over the past few years, Rossi notes.

For instance, the cash management team at Atlas Air holds weekly calls with the major money market funds with which it invests to ensure that it continues to be comfortable with their maturity profile and overall holdings, including specific country concentrations, McGarvey explains. It also uses the calls to gather general industry and regulatory reform updates. Adds Atlas senior vice president and CFO Spencer Schwartz: “When it comes to investments of our cash, we are risk averse and will sacrifice yield to maintain safety.”

Fortunately, the robustness and sophistication of the IT systems they use to manage these assets have also advanced. Paul Reilly, EVP, finance and operations, and CFO of $20.4 billion Arrow Electronics, says over the past decade he’s seen “an acceleration in the development of treasury tools that make the deployment of capital more of a well-thought-out process and less of a gut reaction, back-of-the-envelope approach.”

“Over the last few years, there’s been an expanded use of investment portals,” LaRock adds. One reason: Treasurers can embed their investment policy rules into the portal, preventing moves—whether deliberate or inadvertent—that would violate corporate policies.


When it comes to investing excess cash, CFOs say they are either holding on to it or plowing it back into the business. During 2012, for instance, Applied completed eight acquisitions. Next on Applied’s list: paying dividends—the company’s five-year annual dividend growth rate is 10.8%—and engaging in stock buybacks. “We want to reward the shareholders who invest in our business,” Eisele says.

At Atlas Air, cash is first used to ensure that the company maintains a strong balance sheet. Cash in excess of that is available for investment in new assets that generate appropriate returns to grow the business. In addition, the company has been actively buying back stock at a low price, Schwartz adds.

The attention many companies are currently paying to cash and liquidity management will likely become even more focused over the next year or two, as rates begin to rise. Although Reilly at Arrow doesn’t anticipate a significant reduction in liquidity, he does expect it to come at a higher cost.