By Geralyn Frances
Treasuries are using investment portals like Citi OLI as companies centralize global investment activities and interest in money market funds increases.
Despite the ongoing turmoil in Europe, which has everyone examining closely their exposures, money market funds are back. As post-crisis regulations begin to offer some clarity (albeit slowly) and with enhanced portal tools improving transparency and enabling central management of fund portfolios, money market funds (MMFs) are today experiencing a global expansion.
This growth is due not only to a safer playing field and growing corporate cash balances, but also to cash generation outpacing corporate spending. Confidence is creeping back, too, and while corporate treasurers are dabbling in other instruments—like emerging market debt (countries like the not-so-emergent Brazil et al), absolute return strategies and stable high income portfolio—MMFs are the instrument of choice for earning a decent return while protecting principal and providing ample liquidity.
A lot has changed in the MMF world in the past few years, brought on by experiences of the broken buck. To that end MMFs have been working diligently to help investors get a better view into their MMF hold. Prior to this money fund investors learned the hard way that triple-A ratings were not as reliable as everyone believed. Many funds were found to be holding assets that were outside company investment guidelines or had been temporarily prohibited by the investor due to new risks.
the importance of Portals
The combined challenges of timely access to reporting that listed a fund’s holdings and assigning resources to review and analyze these holdings, left many investors with no option but to abandon prime funds in favor of government funds. As a result, in today’s shaky post-crisis environment, banks and non-bank providers of liquid instruments have positioned themselves to market to corporate clients in new ways to invest safely; all while improving transparency to senior management. One of those ways is through investment portals. Now more than ever, treasurers are relying on their investment portals to provide treasurers the tools, access and control needed to manage their ever-growing pool of cash.
So why an investment portal? Portals provide one-stop shopping to handle all of treasury’s investment needs. According to money market and mutual fund information company Crane Data, 30 to 40 percent of corporate treasuries use investment portals today and that number is expected to rise. Citi’s Online Investments (Citi OLI) is one of the portal offerings taking advantage of this growth.
Like most portals, Citi OLI includes transaction, settlement and reporting tools. It’s for those corporate treasury departments seeking centrally managed and efficient funds management.
Here is a partial list of investment portal features and benefits of most portals today:
- An array of top institutional funds to choose from.
- Central automated management via a single online access point.
- Global and multi-user access via a secure website.
- Onshore and offshore money market funds, primarily denominated in US dollar, the pound sterling and the euro.
- Market information and guidance from knowledgeable financial professionals.
- Streamlined processing for investment transactions and reduced legal documentation
- Same yields as investing directly with the funds.
- Process controls to meet audit, treasury policy and compliance requirements
different qualities
The Citi OLI offering has added features that provide policy compliance, and assist in diversifying a company’s investment portfolio. According to John Carter, head of Citi’s Global Investments Market Management, portals aren’t new; it is just that managements are learning more about them. Portals “have been used for years by treasury,” he said. “Now upper management is interested in what investment portals offer.”
Why now? Increasing due diligence requirements, Mr. Carter said, along with counterparty exposure concerns and the need to centralize investment activities and gain global control over investments. However, Mr. Carter also pointed out that client needs and organizational objectives have become company-specific, and must be assessed before it is determined how the online portal service can provide value.
Most bank-sponsored portals offer their own family of funds. Not so with Citi OLI. Citi’s is unique in that it is tied to any specific group of funds, unlike many other portal providers. Thus Citi is able to provide its clients with a broad array of choices that other bank holding companies cannot offer (most limit their options to their proprietary investment products). On the other hand, Citi OLI clients can access more than 175 institutional funds. And to maintain control and compliance, parameters can be established—such as the percent allowance for each fund— to align with internal investment policy guidelines.
Another distinctive feature of Citi OLI is the additional option of transacting and managing time deposits in 28 countries and in 18 currencies, which is a feature you would not find in most investment portals today. As Mr. Carter pointed out, clients, “have the ability to have a single platform for all their treasury investment management needs, including money market funds and time deposits.”
Central banks to the rescue
A coordinated global central bank intervention in late November helped stave off severe funding stresses for eurozone banks.
Up until the coordinated action, the stresses had increased the likelihood of higher dependence on the European Central Bank (ECB), something policy makers—i.e., the Germans—didn’t want to see happen. The reason for the stress was that banks, other lenders and money market funds, lacking trust in the region, had severely curtailed cash flows to European banks.
For their part, US-based money market funds, of which US corporates have come back to, cut back on their financing of European banks. The net effect was that European banks stopped lending, which in turn threatened to push the eurozone into a deeper recession.
Enter the Federal Reserve and friends. The bank, coordinating with the Bank of England, the ECB, the Bank of Japan, the Bank of Canada and the Swiss national bank, intervened to reduce the cost of short-term dollar loans to banks. These loans, called liquidity swaps, were cut by a half percentage point.
The move ensured that European banks would have the ability to borrow dollars from their own central banks and continue lending operations.
Meeting demand
Emerging markets financial demands are growing and Citi OLI has been able to meet that demand by integrating local investing within a centralized framework. “Although money market funds are in their infancy in these markets, this is likely to change in the near future, with countries such as China and India taking the lead,” Mr. Carter said. A future dated trading feature assists institutional investors trading in multiple time zones.
Bank portal products generally have the added feature of streamlining settlement activity needed to transact investments, as compared to non-bank portal competitors; the bank can simply move money in and out of a company’s existing bank accounts to settle daily trading activity for you. Custodial service needs are reduced and cash settlements are streamlined.
Citi OLI clients can access more than 175 institutional funds.
One drawback may be the need to integrate portal investment activity into your treasury workstation or in-house treasury system that houses other trading activity and produces accounting and other reports embedded in the daily operation of the department. While robust reporting exists in most portal offerings, auto-feeds and similar data integration capacity remain elusive.
However, Citi OLI has focused on incorporating both online reporting and data integration into treasury management systems. The addition of these attributes further streamlines processes and allows seamless coexistence with existing systems.
As investors seek to diversify credit exposure, they demand to know precisely their accumulated risk position across their investment funds at any point time. Investing in commingled MMFs presents a challenge as identical credit exposures can exist within the different funds. Online portals are now positioned to address the broader industry issue of full transparency and data integrity, and new solutions in this area via the portal product are expected in the future.
And perhaps further adding to MMF safety are recent proposals from US Securities and Exchange Commissioner Mary Schapiro. She suggests a revamp of the rules for MMFs, specifically pushing for a floating net asset value and capital buffers. These proposals have met resistance, however, namely from the Investment Company Institute, which says it would require dramatic change in the industry not to mention raise costs of using MMFs.
Despite that potential battle to come, today’s climate is ripe for investing in MMFs again as investment portals have been able to enhance managing them. What needs are best met by the newly enhanced portals is an organization-specific decision; however treasurers should be taking a close look at what is available in the industry and determine what is best for their particular investment goals and compliance needs.