BlogsWalking the tightrope
liquidity remains the a key cause for corporate concern
By Peter Williams | Published 14:16, 19 December 11
Sensible chief financial officers will be trying to escape the current strains of commercial life for a few days over Christmas, even if only to recharge for the joys that 2012 look likely to hold. No doubt for many the respite will be short, and for those in retail and related industries it will be non-existent.
More pain in the New Year looks inevitable and CFOs need to know the liquidity strategy for their companies as well as they do the gift list of their nearest and dearest.
The annual global liquidity survey by JP Morgan Asset Management, in association with treasurer association, the ACT, has unsurprisingly found that liquidity remains the a key cause for corporate concern. However what was a surprise, even a shock, is that the survey found that demand for yield had increased, bringing with it a greater appetite for risk.
Although published in mid-December, the survey actually took place in Q3 of 2011- a time of US credit rating downgrade, and fears that the world may be heading back into recession - but before the heightened sense of panic over the euro zone crisis had kicked in.
At that time the nearly 500 financial professionals from large corporates surveyed around the world were demanding a greater return for their surplus cash and were prepared to seek greater risk in an attempt to navigate the low interest rate environment.
After several years of extremely low yields, and niggling inflation, treasurers are becoming frustrated with the payback on cash investments. JP Morgan says that return on investment is now the key metric for measuring investment success (64 percent in 2011 versus 48 percent in 2010) with preservation of principal dropping to second place (58 percent in 2011 versus 62 percent in 2010).
Indeed the search for yield is such that more than a quarter are prepared to sacrifice daily liquidity for higher yields, a marked increase on last year.
To be clear CFOs and their treasury colleagues have not been seized by a collective madness seeking return over security. Something a little more subtle is going on. As one treasurer put it “managing the margin: getting the best return for minimum/zero risk”.
CFOs have to recognise that the decision to seek out additional yield cannot be taken in isolation. As well as keeping the board properly informed CFOs need to have a segmentation strategy, analysing different cash balances in order to find the right risk return for each one. More of that in 2012.
Robert Deutsch, head of global liquidity at JP Morgan Asset Management, suggested that CFOs are walking a tightrope between appetite for yield and caution over risk. We all know what happens when tightrope walkers screw up, CFOs must do their best to ensure the corporate safety net is still in place in 2012.
More pain in the New Year looks inevitable and CFOs need to know the liquidity strategy for their companies as well as they do the gift list of their nearest and dearest.
The annual global liquidity survey by JP Morgan Asset Management, in association with treasurer association, the ACT, has unsurprisingly found that liquidity remains the a key cause for corporate concern. However what was a surprise, even a shock, is that the survey found that demand for yield had increased, bringing with it a greater appetite for risk.
Although published in mid-December, the survey actually took place in Q3 of 2011- a time of US credit rating downgrade, and fears that the world may be heading back into recession - but before the heightened sense of panic over the euro zone crisis had kicked in.
At that time the nearly 500 financial professionals from large corporates surveyed around the world were demanding a greater return for their surplus cash and were prepared to seek greater risk in an attempt to navigate the low interest rate environment.
After several years of extremely low yields, and niggling inflation, treasurers are becoming frustrated with the payback on cash investments. JP Morgan says that return on investment is now the key metric for measuring investment success (64 percent in 2011 versus 48 percent in 2010) with preservation of principal dropping to second place (58 percent in 2011 versus 62 percent in 2010).
Indeed the search for yield is such that more than a quarter are prepared to sacrifice daily liquidity for higher yields, a marked increase on last year.
To be clear CFOs and their treasury colleagues have not been seized by a collective madness seeking return over security. Something a little more subtle is going on. As one treasurer put it “managing the margin: getting the best return for minimum/zero risk”.
CFOs have to recognise that the decision to seek out additional yield cannot be taken in isolation. As well as keeping the board properly informed CFOs need to have a segmentation strategy, analysing different cash balances in order to find the right risk return for each one. More of that in 2012.
Robert Deutsch, head of global liquidity at JP Morgan Asset Management, suggested that CFOs are walking a tightrope between appetite for yield and caution over risk. We all know what happens when tightrope walkers screw up, CFOs must do their best to ensure the corporate safety net is still in place in 2012.
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