How Cash Segmentation Can Enhance Short-Term Investment Prospects for Treasurers

Yield has been an issue for the short-term cash investments of treasurers, as poor rates and tightening regulation have dramatically lowered the performance ceiling of traditional investment instruments. A recent TMI and Northern Trust Asset Management webinar illustrated how a cash segmentation strategy of splitting cash into different strategic buckets can bring about higher returns with limited additional risk.

The headwinds affecting the performance of traditional short-term investment options for treasurers have intensified over the past couple of years. Two trends in particular have stifled the performance of short-term investments: low to negative interest rates and tightening regulation in the money market fund (MMF) space. The low interest rate environment is hurting treasurers, particularly in the Eurozone where it has been negative for some time and looks likely to remain this way for the foreseeable future.

“They say cash is king, but this king has become expensive,” said Patrick Kunz, Managing Director, Pecunia Treasury & Finance BV.  “For every euro, every pound, maybe even for every dollar, it’s either costing us money or not gaining as much money as it used to in the past. Now the prospect of inflation on the horizon again promises us relatively less money in future. Interest rates and inflation should definitely be on the radar for every treasurer going forward, particularly for those treasurers with a lot of cash.”

Regulators globally have started consultations with money market providers and insurance industry experts to examine what happened in March 2020 at the start of the pandemic in the West, and the impact it had on MMFs.

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