Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Sean Segar, Head of Product at Nedgroup Investments, Cash Solutions

10508

Corporate treasurers hold on to cash piles despite low interest rate environment

RELATED TOPICS​

A survey of 60 corporate treasurers in South Africa by Nedgroup Investments reveals that the majority of respondents have not changed the way they manage money, despite a low interest rate environment and a record ZAR530bn cash pile.



According to Sean Segar, head of product, cash solutions at Nedgroup Investments, 68 per cent of treasurers surveyed are sitting on higher cash balances than they were last year this time, but 75 per cent of respondents said that the lower interest rate environment has not led to them changing the way they manage money.
 
“In fact 87 per cent would like to see even more conservative money market funds without exposure to small banks and corporate paper, indicating just how risk averse this group is,” he says.
 
Segar explains that this is due to the impending migration towards the Basel 3 implementation and the stringent capital and liquidity requirements that it will bring for banks.

“Banks will no doubt pass on the high costs of compliance to borrowers, while the impact on depositors will be mixed with the interest rates banks will be willing to offer varying depending on the type of depositor and how badly the bank needs them. This adds an additional layer of complexity for a treasurer,” he says.
 
According to Segar, the ability to forecast cash flows is becoming more and more important in order to optimise yields. Only three per cent of respondents reported that they are unable to do any cash flow forecasting, while 23 per cent can plan for only one day in advance.  Meanwhile, 32 per cent of respondents said they can comfortably plan a week ahead, 29 per cent a month ahead and a further 13 per cent said they can forecast their cash flows six months in advance. Segar says this opens up superior yield opportunities.
 
“This means that very little cash needs to sit on call as even the ability to plan a day ahead enables treasurers to earn better yields than call,” says Segar.
 
According to Segar, the survey also highlighted the effect that the turmoil in Europe has had on Treasurer’s perceptions of the local economy. “When asked about how they feel about the outlook for South Africa, the vast majority of respondents stated that ‘It’s not easy, but I’d rather be here than in Europe,’” says Segar.
 
Seventy-three per cent of respondents currently make use of money market funds in some way or another, with a further 17 per cent indicating that while they do not use money market funds at present, it makes sense for them to do so in future.
 
Interestingly, and contrary to the case in Europe as noted by Fitch, yield is the most important aspect for local treasurers when selecting a money market fund. “In Europe, corporate treasurers are more interested in capital preservation than yield,” says Segar.
 
Local treasurers are also content with the regulatory environment of South Africa. Forty-two percent of corporate treasurers surveyed believe the financial services regulatory environment in South Africa is “world class”. A further 53 per cent call it “sound” and the remaining five per cent minority classified the regulatory environment as “worrying”.
 
“Meanwhile, 91 per cent are happy with the regulatory environment surrounding money market funds. Seven percent say there is not enough regulation relative to banks, while two per cent think it is too onerous,” concludes Segar.

Latest News

The trading and investment platform eToro has extended its proxy voting feature to all stocks..
C8 Technologies, the London-based fintech founded by former BlueCrest Capital Management partners Mattias Eriksson and..
DWS has announced the latest development in its strategic growth push in Alternative Credit with..

Related Articles

The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also,..
Lady justice
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report...
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI)..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by