Cash Investment in 2014: A Market Snapshot
by Vince A. Tolve, senior vice president, and Michael F. Vogel, vice president, SunGard’s global trading business
For the past four years, SunGard has conducted an in-depth study amongst corporate treasury professionals to explore their attitudes towards cash investment, including strategic cash holdings, asset allocation, investment policies and transaction execution. Uniquely, this allows us to monitor changes in behaviour, viewpoints and priorities in corporate investments.
The study attracted responses from 164 corporations globally, with responses completed during August 2014. This included respondents from all regions and industries, with 48% of respondents located in North America. Most had a centralised approach to treasury management, with 90% of respondent organisations having a single global treasury centre or regional treasury centres, the same proportion as in last year’s report.
Cash balances continuing to increase
Over the past three years, the proportion of companies increasing their cash balances has grown by 6% year over year, from 37% in 2012, 43% in 2013 to 49% in 2014. A third of companies have seen balances grow by 33% or more in 2014 (figure 1).
However, the reasons for holding this cash are changing as market confidence grows. For example, the proportion of companies holding cash to finance capital investment or merger and acquisition (M&A) activity increased by 6% between 2013 and 2014, which we are already starting to see reflected in increased M&A over the coming months and years. Only 11% of companies are now holding cash as a ‘buffer’ against dips in revenue in the future (figure 2), a fall from 13% last year and 17% in 2012, again suggesting improved market confidence in some regions.
Respondents noted that in some cases, surplus liquidity took the form of ‘trapped’ cash (i.e., surplus liquidity held in restricted markets that cannot be repatriated easily and/or cost effectively) and, amongst financial institutions in particular, the holding of capital for regulatory reasons. In some countries, such as China, market liberalisation is making it easier for companies to repatriate cash.