Cash & Liquidity Management
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Using Technology to Gain Visibility over Investments

CMU 2011

by Ben Poole, Editorial Consultant, Ben Poole Editorial Services

In the first two days of December 2011, BNP Paribas held its 5th annual Cash Management University at the illustrious Le Pré Catelan in Paris. The focus of the event was how to use cash and treasury management to improve business performance, and more than 160 corporate delegates from around the world attended plenary sessions and participated in workshops that covered every aspect of the corporate treasury function. One popular workshop on the second day examined strategies and tools to maximise return on surplus cash.

Market conditions for short-term investments

The state of play in money market funds (MMFs) for both corporate investors and banks was explained in the first presentation of the surplus cash workshop, given by Xavier Gandon, Money Market Investment Specialist with BNP Paribas Investment Partners. Gandon began by explaining the fast moving environment of the money markets today, and how this affects both portfolio managers and corporate investors. The CESR, the pan-European regulator, has proposed a two-tiered approach to money market funds in Europe with ‘short-term money market funds’  coexisting with ‘money market funds’ that have more leeway in terms of interest rate and credit risk positioning. The Institutional Money Market Funds Association (IMMFA) and rating agencies have respectively updated their Code of Practice and their guidelines for AAA-rated MMFs.

Gandon concluded by highlighting the differences between MMFs and the other most popular short-term investment option for corporates – bank deposits. He explained that within MMFs, liquidity is high and mutualised between investors, whereas bank deposits do not offer the same overnight liquidity. Sector and issuer diversification with MMFs is usually high, whereas deposits come from just one financial issuer, facilitating the counterparty risk monitoring. Gandon also highlighted the fact that, due to their nature, MMFs can add value in areas such as credit risk and interest rate risk since these risks can be managed actively.