Treasury News Network

Learn & Share the latest News & Analysis in Corporate Treasury

  1. Home
  2. Cash & Liquidity Management
  3. Cash & Liquidity Mngm in North America

Cash holdings edge upwards as finance professionals stop chasing yield

Companies in the US are increasingly holding on to their cash holdings and short-term investments/securities, as delayed corporate tax reform and Trump's involvement in geopolitical tensions have dampen optimism in America's corporate sector.

Trend to increase cash balances

This is one of the findings from the 2017 Liquidity Survey, published by the Association for Financial Professionals (AFP). It found that 32 per cent of financial professionals report an increase in their company's cash holdings within the US in the past 12 months (18 per cent reported a decrease while more than half – 51 per cent – said their cash/investment holdings had not changed significantly). The results don't show much change from 2016. Overall, 63 per cent of companies in the survey said they hold some amount of cash outside the US. The AFP's graph below shows the difference between corporate cash/investment holdings in the US and abroad.

With regards to plans for the future, about six out of 10 finance professionals said they expect their organisation to maintain the same level of cash balances in the coming 12 months, while almost a quarter (24 per cent) said they expect to increase their cash balances.

Investment policies

Seventy-two per cent of the finance professionals surveyed said their company has a written investment policy that dictates their short-term investment strategy. And a far greater proportion of bigger companies (annual revenue > $1 billion) have a written investment policy (82 per cent of them), compare to smaller companies with revenue below $1 billion (58 per cent). The graph below shows some of the variations in written investment policy, according to company size and differing types.

The survey also found that:

  • 67 per cent of survey respondents indicate that safety is the most important short-term investment objective for their companies (see graph below);
  • 30 per cent indicate their company's most important cash investment policy objective is liquidity;
  • and only three per cent of finance professionals cite return as the most important investment objective;
  • the overall majority of companies allocate most of their short-term portfolio – an average of 76 per cent in 2017 – in three safe and liquid investment vehicles: bank deposits, money market funds (MMFs) and Treasury securities;
  • 41 per cent of survey respondents said their companies do not plan to invest in prime funds – due to SEC reforms of money market fund rules; and
  • 23 per cent report they would consider investing in prime funds if the net asset value (NAV) doesn’t move very much, and 20 per cent indicate they would consider investing in prime funds if the spread between prime funds and other investments becomes significant.

Like this item? Get our Weekly Update newsletter. Subscribe today

Also see

Add a comment

New comment submissions are moderated.