By Ted Howard
The July issue of iTreasurer features articles that hew close to the themes of managing emerging market strategies and foreign currency risks. But, to borrow from Stephen Sondheim, A Funny Thing Happened on the Way to the Forum. And that is Brexit, the United Kingdom’s historic decision to exit the European Union.
We take a quick look at the excitement and what it might mean, along with the questions treasurers should ask and be prepared to answer. On the whole, how MNCs will be affected by the surprise departure is yet to be known; and may not be known for some time, according to observers. That’s because it could be years before the split actually takes place. For now, aside from the hit to their stocks, the impact on regulations and international deals could be small at first as the fallout is parceled out over time. Still companies should be preparing.
In our Anticipated Exposures section, we discuss how the regulatory environment has forced companies to be more nimble with their portfolios, which has necessitated the need for a flexible investment policy, whether lowering the bar for lesser credits or widening the scope for other types of assets. Also, how more and more companies are looking at “algo” trading when it comes to FX management. The final AE addresses European policymakers’ decision to delay derivative margin requirements, and how Congress will follow suit and delay margin rules in the US, too.
Geri Westphal discusses how it was a banner year for technology M&A in 2015 with volume up a whopping 94% over the year before. And 2016 is looking just as good, according to data from Bank of America Merrill Lynch. This spike in volume is a good indication of why M&A and divestitures are among the top five priorities in 2016 for treasurers in The NeuGroup peer group universe. Why the flurry of activity? Sentiment is positive. “Really large deals are getting done in reaction to this positive sentiment,” according to BAML, noting that prefunding and flexibility are current themes that are helping spur M&A deals.
There is a summary of The NeuGroup’s Tech20 Treasurers’ Peer Group, which met for its mid-year meeting in early May. This was the group’s 15th anniversary which helped frame how the tech world has changed. Current changes stem from financial regulation, which is changing the relationship between treasurers and their banks as well as the use of money market funds. Both of these changes are putting into sharper focus tech-firms’ cash and what to do with it—in the immediate and longer term.
In “FX in Flux: A View from the Corporate Treasury Desk”, regulation also comes into play in FX markets as they push the buy-side to engage in more due diligence and begin shining a light on the issue of market conduct and enforcement. This has increased the complexity in the structure of the market itself and is forcing some banks to rethink whether it still pays to be a principal in the FX market or if an agency role suits them better.
Finally, Geri Westphal writes about how emerging markets “have become a critical part of multinationals’ business mix and growth strategy.” Yet at the same time has created a now familiar concept for treasurers: complexity. That is, emerging markets have made supporting, financing, hedging and ultimately safeguarding investments that much more perilous and important.