2015 Liquidity Risk Survey Results

Peer group benchmarking is an important exercise for any industry. Over time, benchmarking can identify current industry trends and contribute to goal setting for organizations that strive to stay current with best practices. Here at Capital Advisors Group, while we maintain peer group investment policies which aid in the construction of new investment guidelines, our largest benchmarking effort is the administration of our annual Liquidity Risk Survey which we conduct with our survey partner, Strategic Treasurer. This survey is designed to shed light on treasury departments’ efforts to mitigate liquidity risk in short term cash investments, as well as capture debt and forecasting practices and changes over time. Last week, we closed our fifth and largest Liquidity Risk Survey to date, with responses from 138 treasury departments.

We came away from the survey identifying five main trends. First, treasury departments and financial professionals appear to have begun controlling large bank deposit exposures, potentially motivated in part by a general decline in credit ratings, as well as by the new Liquidity Coverage Ratios imposed on bank deposits. Secondly, while money market fund usage is down, the majority of treasurers indicate they have no clear plans yet in anticipation of money fund reform. Thirdly, the majority of investment policies have been updated in the last two years with most adjustments designed to expand latitude of the investment options. Fourth, in contrast to investment policies that are kept relatively current, organizations do not appear to have formal counterparty risk exposure policies or risk frameworks in place. The survey indicates this is due to apparent difficulties aggregating, analyzing and monitoring counterparty exposures. Lastly, regarding debt, the survey indicates firms seem to have increased the pace at which they renegotiate credit facilities, as well as having structured debt and credit facilities with multiple maturity dates. So, with many thanks to the over 130 corporate treasury professionals who participated in the survey this month, we want to share the details of the survey in hopes that the feedback sheds light on current practices and trends at a time when the industry is in the midst of significant regulatory adoption.

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Best Regards,

Ben Campbell
President & CEO