The Strengths of a Single Investment Platform

My first entry into the institutional liquidity business was back in 1991. I have the perspective of running an institutional liquidity division at a major bank and also of co-founding a financial technology firm that provides institutional clients with tools to manage their liquidity. This experience tells me that the time has finally come for a change in the way that treasury departments research, trade, report and analyse their investments. Transparency is what is changing and technology is making that change possible.

Let’s start by discussing how technology has made it possible for the advantage to shift from sellers of financial products to buyers. Institutional treasurers are buying many financial products. Historically, lack of information made it difficult for clients to understand what they were buying and what each financial product should cost. The investor’s easiest option was to get the information from their broker and, ultimately, this made it possible for brokers to make more money off the spread.

The internet has made information available and easier to get, so that investors who use the available tools are empowered through much better knowledge of how much a security is really worth. This is decreasing the opportunity for brokers to make a spread as, if the price doesn’t seem fair, the investor knows they can simply go to another trusted provider to buy that security. This results in everyone having to ensure their price is fair and competitive, or risk losing the sale.

Money fund portals are a good example to demonstrate this trend as they offer investment products from multiple providers on a single platform. Investors can see what comparable products cost and select the security they want from the provider they like. If one provider doesn’t offer a competitive management fee for a comparable product, they are unlikely to win as much business as the others.

Money fund portals have created transparency and efficiencies but they haven’t solved all the problems for institutional treasurers. When it comes to the investment process, the primary problems for institutional treasury departments are:

They have to use multiple platforms to access multiple investment products
  • There are platforms for trading securities like commercial paper.
  • There are platforms for trading money funds.
They need to maintain good relationships with their banks, but must also benchmark what they are doing and maintain diversification
  • Independent platforms provide an opportunity for objective benchmarking across multiple providers but may create a fear that bank relationships are diminished.
  • Bank platforms provide an opportunity to maintain close relationships with a primary credit bank, but may create the fear that investment objectivity and transparency with multiple banks is diminished.
Once they buy financial products, they still need to move the money to fund the transaction
  • Investors that used independent platforms still needed to use an additional bank system to move the money.
  • Some bank systems provided this functionality but at a cost – for example, lack of transparency and objectivity.
Once a transaction is executed it must be recorded and all of the resultant data needs to get posted to the general ledger
  • All systems speak different languages, and have different interfaces.
  • Banks speak one language, which is SWIFT.

In a perfect world, all institutional investors could use one single platform to access all of their investments from all of their providers. This single system would move the money from their bank to fulfil the trade order and the data would simultaneously get entered into the client’s general ledger. But the reality is that clients are often already married to one or more platforms, not all clients use the same platform and all of these platforms speak a different language so they don’t easily integrate with one another.

  • Some clients like to call their broker.
  • Some like to trade via one or more electronic platforms.
  • Some like to buy their money funds from an independent money fund portal, such as Treasury Curve, or their bank portal.
  • Some buy securities and money funds from a combination of some or all of the above.

The conundrum for institutional treasury departments can be outlined as follows:

They are driven to their banks
  • They want to buy quality securities that are created by their banks using extensive resources.
  • They need to have their bank wire the money to fund the purchase of the security.
  • They want ‘relationship credit’ from their bank for buying the bank’s products as they may be in search of financing or in need of honouring an existing line.
They are driven from their banks to independent platforms
  • They want objective information and transparency to ascertain if they are buying the right product at the right price.
  • They want access to products from multiple banks with the tools to research, trade, report and analyse all of their options.

Regardless of the platform your treasury department uses, all of this data from different securities and the related bank transactions must get into the general ledger. The key is mapping the data. Mapping data is detail-oriented and therefore time consuming. You can’t control how all of the trading platforms shoot out data. However, you do know that most banks speak SWIFT. You also know that most institutional treasury departments use Excel to track their investment transactions and account balances. A platform that is compatible with SWIFT and can feed important data to and from Excel is also one that is helpful to the majority.

I don’t believe the future for everyone rests on one single platform that does everything. There will, for example, always be those investors that don’t want to change how they buy investments. However I do believe the future lies in one platform that captures all financial transaction data, organises and presents that data in a useful way and gets the data into the general ledger. Now imagine applying that same model across other treasury functions in addition to investments, including payments, cash reporting and forecasting and foreign exchange (FX). That would truly change how treasury departments do their jobs today and make everyone’s life easier.

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