Treasury matters are getting more attention than they were a year ago and boards mostly have a balanced approach to taking risk. These were among the key findings of the ACT’s Talking Treasury event held in London at the end of March. A poll of delegates taken at the event found that 58% reported that their board was discussing treasury issues more regularly than 12 months ago, with just 17% saying that they were discussed less.
Meanwhile, an overwhelming majority (84%) thought that their board took a balanced approach to risk, with just 4% thinking it was too cautious and 7% believing it was not cautious enough. On the whole, boards have not wavered in their attitudes to risk over the past year, since 74% of delegates reported that there had been no change in their board’s risk appetite.
Availability of finance continues to be a pressing issue for treasury teams with half of delegates citing it as their top priority
Money market funds (MMFs) are the preferred investment option for surplus cash, favoured by 53% of delegates. Bank deposits were mainly used for 39%. During a panel discussion, one panellist revealed that investors in his company were not complaining about the cost of carry. They were cautious and therefore more concerned with getting dividends, he said. Delegates attending the event were asked to vote on whether they thought their company would increase cash reserves over the next year and not a single delegate said ‘yes’.
Availability of finance continues to be a pressing issue for treasury teams, with half of delegates citing it as their top priority. Improving systems was the next greatest concern, preoccupying 30%, while managing counterparty risk was a major concern for 8%. Encouragingly, 48% of delegates reported that raising funds was “somewhat easier” than a year ago, although that is probably because many treasurers tend to work for larger organisations, which find it easier to access funds. Speakers at the event agreed that if you worked for a big company, banks were “very much open for business”. Feedback from representatives from the SME sector suggested smaller organisations find it harder to raise finance.
Bonds are the preferred source of funding, with 43% of delegates saying that they were “mainly reliant” on this method, compared with 30% who were mostly dependent on bank funding. During a panel discussion, the potential of Asia as a pool of capital that offers funding diversification was raised and panellists also pointed out that internal sources of funding often tend to be cheaper than external ones. The outlook for funding was good they said, because even in developed markets there were still plenty of investors with cash to invest. Commercial paper is a useful tool for treasurers, but it is important not to over-rely on it, one speaker said.
Unsurprisingly, stability within the banking sector is more important to treasurers than increased competition between banks, greater bank regulation or the conduct of banks and their employees. Treasurers are very concerned about how OTC derivatives will be affected by the European market infrastructure regulation (EMIR), with 59% saying that they did not believe companies should be required to provide cash collateral in respect of derivatives. Delegates learned that the regulation created a “benign incentive towards mandatory clearing” and also increased the likelihood that instruments that were previously considered derivatives would be given a new legal name to get around the legislation. But delegates were told that regulators would eventually catch up with this practice and write anti-avoidance rules. A big issue is that regulators don’t seem to understand that businesses use derivatives to hedge risks, not make a profit. Treasurers did not know how government proposals to ‘ring-fence’ banks’ retail arms from their investment arms were likely to affect their companies.
Despite treasury having greater prominence at board level, treasurers are still not fully integrated into business planning processes
When assessing counterparty risk, one speaker defined his approach as considering “the old AA as the new A”. There is also a trend for corporates to accept lower credit ratings for other corporates, but not from banks. One speaker suggested that treasurers consider investing with building societies, “which tend to have a safe, mutualised approach to managing their business”. MMFs are still considered a safe option, although there are differences between funds, and treasurers need to ensure that they have an ongoing dialogue with their fund managers, delegates learned. Treasurers still play an active role in planning for a eurozone break-up even though the threat appears to have receded.
Despite treasury having greater prominence at board level, treasurers are still not fully integrated into business planning processes. Just 16% of delegates said they were fully integrated into business planning with larger proportions, revealing that they had an opportunity to review the plan and provide input (43%) and that they get to see the plan, but too late for it to be changed (30%). One speaker pointed out that it was important for treasurers to show their faces around the business and explain the risks, opportunities and challenges that the business is facing. It is also essential that treasurers “speak the language of the board”. The treasury profession has not yet achieved the goal of establishing the ‘strategic treasurer’ and treasurers are often shackled by business-as-usual activities, delegates heard. In a poll of delegates, just 24% said they had sufficient time to devote to longer-term issues, with 39% admitting that they wished they could spend more time on them and a harassed 36% confessing they spent their time “continually fighting fires”.
Note: The ACT’s Talking Treasury London event was conducted under the Chatham House Rule.
Sally Percy is editor of The Treasurer