Corporate Cash Management: Assessing Online Money Market Portals

It has been observed that managing corporate cash is both an art and a science. Fortunately, for treasury departments electing to retain responsibility for their overnight liquidity, there is a wealth of technology dedicated to addressing the ‘science’ side of the equation. This technology is available through a number of online money market portals. In general these portals facilitate the business of managing cash in a highly efficient and effective manner; however not all portals are ‘created equal’.

The following is a brief overview of what the most technologically advanced money market portals offer, as well as our perspectives on related issues that we recommend treasury departments consider when assessing their options.

Risk Management

The best technology platforms enable treasury departments to effectively monitor exposure and portfolio risk on an ongoing basis, and to determine in advance how a proposed transaction will affect both asset allocations and investment policy compliance.

These online assessment tools will include detailed information on the types of funds and fund families, countries of issuance, asset classes, maturity structure, and exposure to specific issuers. This information can be used to create reports and to assist in making decisions regarding risk management and other related issues.

Fund Selection

The numbers and types of funds and fund families available via a portal have a direct bearing on the opportunities for pursuing enhanced returns while preserving diversification within the portfolio. Broader fund selection also increases the likelihood that a treasury department will be able to access and invest in funds from most, or all, of its relationship banks.

Portals will typically, but not always, provide an array of data on each fund, including one day yield, seven day yield, daily factor, fund size, ratings, weighted average maturity (WAM), expense ratios, share class, ticker symbol, and cut off times for purchases and sales.

In the event a portal features proprietary funds, it is important to recognise the potential for a conflict of interest when seeking advice and guidance from the portal sponsor on various investment options.

Alternatively, when investment professionals associated with a portal operate on an independent, open architecture platform they are in a position to offer objective, unbiased advice, and to do so on a proactive basis. Consequently, it is advisable to develop a clear understanding of how a portal is positioned in the marketplace.

Online Reporting

The ‘ideal’ portal will provide Sarbanes-Oxley (SOX) compliant, integrated FASB 115 accounting, compliance, performance, and portfolio analytics reporting systems on a single, consolidated platform. In addition, the best portals will deliver online daily accruals. 
Some portal systems have the ability to aggregate reporting for multiple entries, including accounts that reside outside the portal. When assessing this feature, it is important to determine whether or not the system produces a Service Organisation Controls (SOC 1) report for review by the company’s auditors.

Under optimum circumstances, these data will be interfaced with the treasury workstation, and can be manipulated to conform to the treasury department’s unique reporting requirements.

Consolidated Account and Wire Transfers

The most efficient money market portals provide access to every fund family via a single, consolidated account, and only one set of documents is required to establish the account. Also, purchasing or redeeming multiple funds requires only a single wire transfer.

The portal technology will also enable trades to be executed on a fully disclosed or anonymous basis.

Custodial Considerations

It is important to know where assets will be held and by whom. Assets should be held in a segregated account, with a recognised and trusted custodian. Custodians also typically process wire transfers, issue trade confirmations and client statements.

Costs

There should be no wire transfer or custodial fees or other fees associated with managing cash via a portal. Portal sponsors are typically compensated by the fund companies, and do not levy additional fees.

Offline Support

The best portals are further distinguished by offering exceptional offline support. This support includes providing portal clients with ongoing updates on subjects ranging from macro issues such as Federal Reserve or regulatory policy changes to individual fund issues such as portfolio composition or performance.

However, given the prevailing volatility within domestic and foreign markets, providing direct access to investment professionals associated with the portal and to their informed insights may be the most valuable offline support a portal sponsor has to offer.

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