Cash & Liquidity Management
Published  6 MIN READ
Please note: this article is over 12 years old. If you feel this article is inaccurate or contains errors get in touch here . Many thanks, TMI

A Collaborative Approach to Optimising Cash Investment

by Séverine Le Blévennec, Director, EMEA Treasury, Honeywell

Honeywell’s group treasury is headquartered in the United States, with a regional treasury centre (RTC) for EMEA based in Brussels, and a further two people based in the UK, Germany & France. Another RTC manages Asia Pacific, with personnel located in Singapore and Shanghai. The RTC for EMEA manages cash and treasury management activities across 43 countries and more than 300 business entities. An in-house bank is in place, and cash concentration is highly efficient, with 24 cash pools in place across the region. As a result of these activities, there are large amounts of surplus cash managed by the RTC, currently around €2.1bn. Cash investment is therefore a core activity for treasury in Brussels.

Determining cash investment criteria

Our primary investment objective is capital preservation, while maintaining liquidity is an essential secondary requirement. We often need access to large amounts of cash for mergers and acquisitions, capital investment or to fund business activities, so liquidity is very important. Our third objective is yield. Despite the low interest rate environment, we are still obliged to maximise the value of our cash within strict risk guidelines. Our investment policies are determined by an investment committee, which defines a conservative approach to the way that we manage our cash. We use a variety of criteria for selecting suitable investments. For example, we use both credit ratings and credit default swaps to determine global counterparty credit limits. We have systems in place that allow us complete visibility of all our positions, ensuring we can monitor limit utilisation. In addition, we have an effective approach to cash flow forecasting so we have a high degree of confidence in our future cash flow needs.

We needed a rationalised approach to identifying potential funds in which we could invest.

We invest in a range of instruments, including bank deposits, money market funds (MMFs) and government bonds. Bank deposits are typically short-term in order to maintain access to liquidity. However, there is a relatively small number of counterparties that we consider safe enough in which to invest, and each limit is relatively low compared with our total amount of cash. The ability to invest in MMFs is a relatively recent phenomenon for Honeywell at its in-house bank, as while we had Belgian co-ordination centre status, we were not permitted to invest in these instruments. Once this status expired, we were able to consider the use of MMFs. These are now an important repository for our cash but as with bank deposits, we needed to adopt a conservative and well-informed approach to the way that we selected funds.