Forget John Grisham and Jackie Collins - this month’s essential beach reading is all about investment. The period which we are in has frequently been referred to as a time of ‘economic uncertainty’ - no-one knows quite what’s happening, what will happen and indeed, in many cases, what has happened. So does this mean that we should forgo our annual jaunt to the beach and be peering at our Bloomberg or Reuters screens instead?
Among the first 20 companies included in the Treasurers' Benchmark, only one had any long-term investments at all.
In fact, preparing for this article, and indeed the topic of investment in corporate treasury more widely, has been something of a revelation to me. Back in the balmy days when I was in treasury, admittedly of an extremely cash-rich company, we spent every afternoon switching in and out of USD investments - bonds, FRNs but in particular, every flavour of asset-backed security you could imagine: mortgages, credit cards, student loans, car loans. For us, the elements which defined treasury performance were i) cash balances at zero at the end of each day, without the odd collection sneaking in at the last moment, or not coming in at all, and ii) the yield on long-term investments. This is not to say that other priorities weren’t important: counterparty limits, credit ratings and endless investment policy reviews were also scrutinised, but ultimately, yield was what mattered.
Admittedly, that company was not necessarily representative of the treasury world as a whole. However, I had expected that at least some vestiges of long-term investment would exist. After all, every RFP to a treasury management system vendor gives an interminable list of all the investment types which the system is expected to manage. In the spring of 2007, the Treasurers’ Benchmark, which provides peer benchmarking for corporate treasurers, produced its findings on corporate investment. Short-term investment, yes, and in all varieties: commercial paper, certificates of deposit, repos, not forgetting the humble deposit and the up-and-coming money market fund. Medium-term investment? Long-term investment? Among the first 20 companies included in the Treasurers’ Benchmark, only one had any long-term investments at all. As the number of Benchmark participants grew, this number stayed resolutely the same. Then an insurance company joined, which was a rather different situation, so one became a tentative two. Fifteen months on, the number has fallen to one, which is the insurance company.
So what are we to make of this? Are there really no long-term investments among corporates out there? Well of course there are some exceptions, but on the whole, no there aren’t. As Jason Singer, Executive Director, Money Market Portfolio Management, Goldman Sachs Asset Management (GSAM) explains,
“We believe there is really no long-term investment alternative at the moment if preservation of principal is the priority.”
So, on this basis, the whole premise of this article needs to change. From talking about what type of medium- and long-term investments corporates are, or should be investing in, perhaps we need to look instead at investment policies and priorities.