Finding Value for Corporate Cash: Short-term Investments Under the Microscope

A perfect storm of low interest rates, the pandemic, and potential regulation has put pressure on the short-term investment instruments that treasurers rely on for cash management. Add in trending topics such as environmental, social, and governance (ESG) and the role of technology in business, and it is clear there is plenty for treasurers to consider when planning how to deploy corporate cash.

The onset of the Covid-19 pandemic in 2020 triggered a massive increase in corporate cash balances. Treasurers built up liquidity buffers, drew down on credit facilities and were left managing unspent budgets from postponed or cancelled projects. By the end of 2020, US corporates held a record $2.5tr. in cash,^[1] for example. In 2021, as businesses have become accustomed to operating under these pressures, the sense of panic may have dissipated, but excess liquidity across all currencies is still a significant factor.

Daniel Farrell, Director, International Short Duration Fixed Income, Northern Trust Asset Management, explains: “Investors, including corporate treasurers, are holding more liquidity, and we’ve seen record bond issuance levels this year. In addition to that, huge amounts of additional liquidity have been provided to the market this year through conventional and non-conventional monetary policy, causing that excess liquidity to increase.”

For treasurers, a natural reaction to a high level of cash on the books is to look for short-term investment instruments in which to deploy at least some of that cash. However, both internal and external challenges are complicating matters, according to Jim Fuell, Head of Global Liquidity Sales, International, J.P. Morgan Asset Management.

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