By Sebastian Ramos, EVP Global Trading and Products at ICD
As organizations build their investment guidelines, they must minimize risk, maintain liquidity and maximize yield, while meeting the operational needs of their specific businesses. But because no two organizations are the same, a misalignment between investment strategies and operational strategies can cause treasury organizations to miss out on yield or risk working cash.
In a session at AFP 2020, ICD will do a deep dive into how treasury departments align their short-term investment objectives with the needs of their very different business operations. We’ll be joined by Tom Wolfe, Vice President, Treasury, from MGM Resorts; Kim Kelly-Lippert, Manager, Treasury Operations at American Honda; and Ryan Seghesio, Vice President, Chief Financial Officer and Treasurer for California ISO.
INVESTMENTS IN THE NEW NORMAL
It is more important than ever to get investment strategies right in the new normal, as businesses ride out this global pandemic. Every aspect of business operations is being challenged as a result of COVID-19’s impact on supply chains, staff, accounts receivable, accounts payable, etc. Regardless of how companies adjust to this challenge, treasury will need to be at the ready with the cash and strategic recommendations to help pivot the business. That means making the right investment decisions, at the right time, to weather the storm and right the ship.
Access to liquidity is a top concern for treasury professionals in ordinary times, and especially as the impacts of this pandemic continue to unfold. According to AFP’s Impact of the COVID-19 Pandemic Survey, treasury departments are building liquidity buffers just in case conditions worsen. How treasury performs—its success or failure—in aligning investment and operational strategies will be more apparent than ever.
In this new environment, there are several actions that treasury departments can take:
Rethink your investment portfolio. According AFP’s COVID-19 Survey, larger companies are aggressively changing their portfolios. Fully 37% have already made moves and another 9% are in the planning stage. Meanwhile, many smaller companies have been shortening the duration of their portfolios, offering them more flexibility.
Cut costs where you can. For many organizations, this might mean delaying hiring and capital expenditures. The majority of respondents to AFP’s survey have done both.
Listen to your peers. There’s no better way to gain knowledge at this time than through the shared experience of fellow practitioners.
That last point is where our session comes into play. Treasury professionals from three different businesses will share their investment guidelines and short-term investment vehicles, the compliance rules used to adhere to those guidelines, and the reporting involved to prove good investment behavior to management. As an example of how they will share how cash flows are affected by their businesses, MGM, which primarily operates resorts in Las Vegas (including the AFP 2020 convention site, Mandalay Bay Resort and Casino), sees large inflows of cash for dates such as fight nights or holidays, while American Honda sees fairly consistent short-term behavior on a monthly basis. The California ISO has complex operations involving managing daily investments across hundreds of accounts for a single legal entity.
Corporations are as dynamic as the markets in which they do business. Developing an investment strategy and policy that ties to a company’s cash flow requirements will make a difference in how well treasury manages access to liquidity.
Insights gained from this session will be easily applied, without large team buy-ins. Attendees will walk away with new ways to look at investments, a deeper understanding of how a business is structured, and the cost-free investment technologies that are available to help treasury professionals adapt to change quickly and confidently.
Don’t miss the AFP 2020 session, Aligning Investment Strategy with Your Company's Operations, which is part of the Capital Markets & Investments track. For more information on AFP 2020, download the Brochure here.