Risk appetite among corporate treasurers continues on the path of gradual recovery, finds JP Morgan Asset Management's 13th annual Global Liquidity Investment Survey. Furthermore, surplus cash levels are at historic highs and continue to grow, but treasurers are less satisfied with the returns they are able to obtain on their cash balances.
The survey, which collated the views of a record 487 treasurers around the globe, also finds that return on investment is now the key metric for measuring investment success (64% this year versus 48% in 2010), with preservation of principal dropping to second place (58% this year versus 62% in 2010).
The study also finds that a greater proportion of treasurers are now looking for higher yields and they are more willing than last year to take on additional risk to achieve them.
Meanwhile, liquidity is the biggest concern in treasury departments today, and is also the most important consideration for those who segment their surplus cash.
However, more than a quarter of treasurers would now be prepared to sacrifice daily liquidity for higher yields - a marked increase versus last year.
Risk management is now the third-highest area of importance for the treasury department, moving up from fifth in 2010. Counterparty risk is a key concern, with the financial strength of the institution now the most important criterion for treasurers when selecting a primary bank, overtaking the quality of relationship management (50% this year versus 62% in 2010) for the first time.
"This year has been a challenging year for treasurers as they walk a 'tightrope' between their appetite for yield on one hand and their caution about risk on the other - a delicate balance that was summed up by one treasurer as 'managing the margin: getting the best return for minimum/zero risk'," says Robert Deutsch, head of global liquidity at JP Morgan Asset Management. According to Deutsch, treasurers are increasingly recognising that the decision to seek out additional yield cannot be taken in isolation.
"It will touch on many areas of investment policy and an organisation's overall approach to the investment management process," he says.
Rather than targeting a particular yield at the outset, it is increasingly critical that treasurers begin to implement a segmentation strategy when analysing their cash balances in order to determine appropriate risk return considerations and investment solutions, notes Deutsch.
The survey also found cash flow forecasting is not the priority it once was: cash management (e.g. cash concentration, liquidity management) replaced cash flow forecasting as the key area of importance for treasury departments in 2010, and took the top spot again this year.
Accurate cash flow forecasting fell in importance as a measure of success in both 2010 and 2011. This may be a consequence of the higher levels of cash on corporate balance sheets in recent years, with treasurers currently not needing to place the same importance on cash flow forecasting that they did in the past, when balances were lower.
It may also be that treasurers have improved their processes and now have greater comfort in their ability to forecast flows.
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