Understanding Cash Investment Trends
by Michael F. Vogel, senior vice president, and Vince A. Tolve, vice president, SunGard’s brokerage business
SunGard recently commissioned a study among corporate treasury professionals to understand corporate attitudes to cash investment, including strategic cash holdings, asset allocation, investment policies and transaction execution. This follows a similar study conducted in 2011 (a summary of which was published in TMI February 2012) enabling us to identify trends and developments over time.
The study attracted responses from 209 corporations globally. This included respondents from all regions and industries, with over 55% of companies headquartered in North America and a significant number of responses from Europe.
This article outlines some of the key findings from the study. For more information about the study or to reserve your copy of the report visit www.sungard.com/cashmanagement
The majority of companies involved in this study had already centralised their treasury at a global or regional level. Of those companies, 59% represented a single, global treasury centre, and 34% of companies are adopting a regional treasury approach. This data would appear to reflect a higher proportion of global treasury centres than would normally be expected; however, this may be explained by the fact that a large proportion of companies were headquartered in the United States, some of which have predominantly domestic cash and treasury management requirements. In addition, although individual respondents may represent a global treasury centre, this is not to say that the company does not also have regional treasury centres.
Approximately half (51%) of companies had not changed the degree of centralisation in their treasury organisation over the past 12 months. Forty-three per cent had increased the level of cash and treasury centralisation, illustrating that centralisation remains a priority for many companies. This is supported by the fact that since last year’s study, the proportion of companies with a decentralised treasury approach has fallen from 16% to 3%.
Surplus cash balances
Companies hold cash balances for a variety of reasons. In the short term, cash is required for working capital financing (noted by 29% of the respondents). Some companies hold cash for the longer term to finance capital investment or mergers and acquisitions (M&A), to pay down debt and to pay dividends to shareholders. In addition, 17% of companies noted that they held surplus cash as a ‘buffer’ against dips in revenue in the future.