Comprehensive Cash Investment Strategies

Abstract

The challenging environment for treasury cash investments has prompted many practitioners to look for alternative options in managing their excess cash. We address this topic in a generalized manner, summarizing three major categories of available cash investment vehicles: deposits, pooled assets and direct purchases. The pros and cons of each vehicle type are discussed. Corporate cash investors may benefit from this analysis as they discuss their options internally and with their investment managers.

Introduction

To say that a lot has changed in the last five years with respect to corporate cash investments is a great understatement. We witnessed the failure of several popular investment vehicles in 2007. We saw formidable financial issuers falling on hard times in 2008 and beyond. We’ve endured a prolonged low yield environment since early 2009. The Eurozone debt crisis is in its third or fourth phase. World economies remain sluggish and the future of financial regulations remains uncertain. In short, it is no small feat to ensure return of investments, let alone return on them.
With the unlimited FDIC insurance coverage on transactional accounts set to expire soon and the future of money market mutual funds uncertain, many corporate treasury professionals have asked us for a more comprehensive approach to managing their excess cash. They want to know all the reasonable options for their principal investments before they decide on specific strategies. Rather than making specific references to eligible investments, we wanted to address this topic in a more generalized fashion.

Corporate Cash Over 40 Years

To many corporate treasury practitioners, today’s cash management options are fairly limited: bank deposits and money market funds. As the number of creditworthy banks dwindles and the fate of money market funds remains uncertain, it may help to have a historical perspective of cash management before the hay day of money market funds, which may cause us rethink our cash management opportunities.
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