In a sellout session chairman Michael Spellman, vice president, global cash at State Street Global Advisors kicked off proceedings by asking the audience how many of them had trapped cash within their organisation’s subsidiaries that had to be managed around the world. A sea of raised hands attested to the fact that trapped cash and national cash migration strategies has become a major challenge for all major corporates with overseas operations. “We see our clients facing trapped cash challenges around the world and it’s obviously a problem common among multinationals,” said Spellman.
Providing examples of how two well-known US multinationals manage their cash, both onshore and offshore, were Jamie Cortas, director of worldwide investment portfolio strategies and treasury at EMC Corporation and Geoff Nolan, acting global head of investment at eBay. Cortas said the EMC, a US-based tech group with annual revenues of US$23.5bn and net income of over US$4bn, has a presence in 86 countries with 60,000 employees worldwide and over a 10-year period has invested US$33bn in leading technologies.
EMC adopts a segmentation approach towards its onshore and offshore cash, with a division into three tiers of primary liquidity, secondary liquidity and excess liquidity in order to minimise its bank balances and counterparty risk. Nolan said that the primary goal of eBay’s mandate is principal protection, through prudent management of its portfolio as set out in the group’s investment guidelines. Like EMC, eBay also adopts a three –tiered approach with cash management allocated to operating cash, a liquidity bucket and a long-term cash bucket.
Another session with a global focus examined how multinationals can best attract and retain treasury talent in high-growth markets overseas. Karen Hom, transaction banking director at Standard Chartered forecast that the next 20 years would be marked by a growing shortage of experienced treasury staff, particularly in the fast-growing markets of China and India – even though specialist expertise was vital in keeping abreast of developing regulation and other areas.
Hom identified the main challenges in these markets as the steady expansion of the treasurer’s role, the global shortage of suitable talent to meet this expansion and the need for multinationals to recognise what motivates and retains top talent. “You need to let your people know that they are important,” she reminded her audience.
On hand to offer their experiences were Rene Bustamante, staff vice president and assistant treasurer for FedEx Corporation’s treasury department and Gloria Greisinger, director, global treasury and pensions at power systems group Cummins. FedEx’s global cash management activities are centred on its Memphis, Tennessee head office, while treasury managers for the Asia Pacific region and Europe, the Middle East and Africa (EMEA) are respectively located in Hong Kong and Brussels and Bustamante said that the management and development of global talent followed a basic five-point programme of open and continuous dialogue; accessibility at all times to the head office; employee mentoring; creation of training opportunities and creation of a team culture.
FedEx also has a policy of employing local talent in all the regions of the world in which it operates, rather than bringing in expats or individuals from overseas. The group’s mentoring programme enables time to be spent in getting to know staff at all levels and ensuring they are fully aware of their strategic role within the organisation.
Cummins also has regional offices, with the UK office overseeing Europe and the Middle East; South Africa responsible for operations in Africa and Brazil for Latin America, while Singapore oversees North East and South East Asia with a separate office for China. Greisinger said that the group has developed knowledge of how each separate region operates, has learned local cultural differences and can respond appropriately, uses the knowledge gained in one region to anticipate and respond to needs in another and has guaranteed support at the senior executive and chief financial officer (CFO) level.
Other important policies and procedures used to attract and retain treasury talent include enduring that all regions are considered rather than attempting to pursue a North America-centric approach and also letting the regions take the lead in policy development.
Cummins has also experienced difficulties in recruiting experienced treasury personnel in certain regions of the world, Greisinger confirming a general view that the problem is particularly acute in Africa. The group also regularly finds that hiring new personnel is typically a three to six-months process, while outside North America contracts that require a new employee to give a full two months’ notice before her or she can depart their previous job are commonplace.
Investment Risk and Risk Appetite
The theme of global investment risk management best practice, innovation and strategy proved to be another popular draw and was introduced by Scott Fox, senior vice president of business development at global investment and risk management group ICD. As he noted the two companies presenting their strategies at the session are both well over 100 years old: Coca-Cola has been in business since 1886, operates in over 200 countries worldwide and has a portfolio of over 3,500 products. Western Union (WU) is even older, established 162 years ago.
Devin Parker , WU’s vice president and assistant treasurer, capital markets, investments, risk and insurance, took his audience through the group’s investment considerations and risk approach. The basic framework identifies the group’s liquidity characteristics and needs against its investment horizon; formulates investment objectives and establishes guidelines; constructs optimal portfolio allocations and actively manages those portfolios. Of course, as Coca-Cola’s senior treasury analyst, Jeff Knapp, added each organisation’s approach will reflect its own individual risk appetite.
Risk toleration must also be considered at an early stage, focusing on the trade-off between investment yield and volatility; the potential for negative returns and the effect of interest rate moves. Methods of evaluating risk still include a role for the credit ratings agencies (CRAs), despite the criticism heaped on them as the global financial crisis deepened in 2007-08.
Other investment risk considerations include ‘what if?’ scenarios and as Knapp noted, these have most recently included the question: ‘What are the implications on the company’s liquidity of a failure by the US government to increase the country’s debt ceiling and a potential default or payment delay resulting from such an action?’ As he added, although unlikely such an outcome cannot be entirely ruled out and neither is it a temporary issue. Washington has maintained its policy of simply “kicking the can further down the road” and the prospect of a potential default may well re-emerge in just a few weeks’ time.
When it comes to the relationship between Europe and Britain – uniformity isn’t a word that currently springs to mind. And that’s not just a reference to Brexit. Whilst the Europe and Britain do find themselves in the midst of a political break-up – their monetary policies are also showing signs of divergence.
Europe’s introduction of the General Data Protection Regulation (GDPR) next May will have implications for businesses around the world and US corporates should start getting ready if they haven’t already done so.
As anticipated, US organisations exited prime money market funds en masse following last year’s SEC reforms. AFP’s latest Liquidity Survey indicates what it will take to encourage them back.
The statement issued by the bank also suggests that fiat currencies are superior, due to their price stability.