For most multinational companies the largest growing portfolio is the offshore portfolio. This is particularly true for members of The NeuGroup’s Treasury Investment Managers’ Peer Group 2 (TIMPG2). In a recent meeting, members discussed the challenges of managing those offshore assets, as well as the challenges of negative cash rates in Europe.
In the group’s pre-meeting survey, 80 percent of the members said they manage investment portfolios that include offshore cash. Within this group, two-thirds said they can manage the on- and offshore portfolio the same manner. Still there were challenges to doing so.
This was particularly evident for so-called trapped cash. One TIMPG2 member faces challenges with trapped cash in the Middle East. The investment manager explained that his company is required to go through certain investment channels, so they hold most of the funds in time deposits. Here, very few managers, logistical challenges and lack of clear-cut runs complicate investments. Many members also shared similar experiences in other countries, such as Venezuela and Brazil and parts of Asia.
In some cases, since the cash is inaccessible, not needed right away or otherwise restricted, companies are using longer duration products to gather a little interest. At one member company about three-quarters of its cash is offshore. Since these funds are not immediately needed they have added from 3-year to 5-year duration issues to the account. This member also noted that most of the credit work that is performed is for the offshore account.
Taxes are another consideration and sometime the company’s tax department will push the repatriation effort. One member reports that at his company, the on- and offshore accounts are managed the same. They “return on basis” funds with no tax consequence but it takes time. Recently they brought back some cash, but this was a two-year process. The tax department—and not the investment group—drives the process.
Until large-scale tax reform in the US happens or there are other global tax rules changes, companies will continue to struggle with their trapped cash in offshore accounts. Members have used the offshore accounts to increase investment yield and duration to the investment program. And while this period of restricted cash continues, companies are coming up with creative ways to manage it. However, no one has “built a better mouse trap” in this regard and there is no “ah-ha” solution. But over time more products will be developed.