Some treasury investment managers are creating “ultra-liquid” funds to prepare for a Euro shock.
Here’s another way to be prepared for a possible eurozone collapse (in form or another): create a cash fund that is “ultra-liquid” for fast-cash needs.
Although many companies have been preparing for eurozone uncertainty since the end of last year (see related story here), treasurers have not eased up on their plans. They continue to refine them as well as seek out any unknown exposures that could hurt them in the event something big and bad happens in Europe. For instance several companies within the greater NeuGroup universe have moved out of European banks generally; or have restricted themselves to investing only in Northern European banks. Some have remained invested in Europe but have kept all of the company’s cash in dollars. Now some are talking about boosting cash so it’s ready when they are.
At the recent TIMPG meeting, several members noted that their liquidity pools might not be as liquid as necessary if there is a quick need for cash. To solve for this, some have created an “ultra-liquid” fund to ensure they can have access to substantial amounts of cash quickly. This isn’t easy and presents the challenge of managing short-term cash that you know will be spent soon but don’t know the exact date.
One member is modeling his ultra-liquid fund on a similar situation where there was uncertainty surrounding an upcoming European acquisition. The uncertainty stemmed from the acquisition needing the approval of three separate governments. Despite the unknowns, the cash needed to be available to close the transaction; keeping that money liquid but optimally working during this holding period was tricky when many European options are generally off the table. This manager ended up using multiple funds and repo’s as he awaited the government approvals.
Constant vigilance. Along with the suggestion to keep cash available, another was to form a eurozone breakup observer group. Several in the TIMPG said their companies had formed a group like this – some calling it a task force – to monitor the European situation. These groups are cross-functional and in some cases monitor broad risks beyond just treasury.