Insight into Corporate Cash Management

Managing corporate cash with the objectives of capital preservation, liquidity, and return is often thought of as a staid and steady endeavor. However, in reality, buy lists need to be actively adjusted to preemptively manage credit risk. Over the last 12 months, credits have been affected by, among other things, earnings reports, regulatory reform, and Eurozone debt developments. Managers of both money market funds and separately managed accounts have been challenged to adjust their buy lists to stay ahead of these developments. These changes in exposure, however, are not necessarily captured in today’s glossy compliance reports since rating classifications are generally not sensitive enough to reflect changing buy lists, causing both old and new exposures to look the same.

Our 20 years of corporate cash management experience, combined with the expansion of our credit database, supports an analysis of changing risks in money market funds (FundIQ). This has allowed us to develop a valuable, real-time view of credit migrations in the industry. Our proprietary research helps us understand how specific credit exposures have been modified on a security-by-security basis and also captures drifts in asset class exposure. While empirical data provide an interesting view of the aggregate credit management behavior of a variety of managers, the filter of hindsight allows us to identify proactive vs. reactive styles as credits are repositioned over time. This month, we thought we would share some of this insight as we look at how credit migrations have impacted cash investors. We look at these trends not to pass judgment on other managers but to demonstrate the activity, often taken for granted, behind the staid and steady endeavor of credit management.

Best Regards,

Ben Campbell
President & CEO