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Significant increase in US cash holdings attributed to pandemic

As organisations gradually recover from the liquidity crisis due to the coronavirus pandemic, there is a large focus on preserving their cash and safeguarding against any future uncertainty, according to the 2021 Association for Financial Professionals (AFP) Liquidity Survey, underwritten by Invesco.

In a survey of 327 corporate treasury and finance professionals, 47% report an increase in their organisations’ cash and short-term investment holdings within the US in the past 12 months ending March 2021, which is 16 percentage points higher than the 31% reported in the 2020 AFP Liquidity Survey Report and the highest share reported in the 16 years that AFP has been tracking this data. Nearly three-quarters (72%) of survey respondents report that pandemic planning and contingencies had either a significant or some impact on the increase in cash holdings at their organisations.

"As expected, the pandemic’s impact on liquidity has shaped and continues to shape organisations’ cash and short-term investment decisions," commented Jim Kaitz, president and CEO of AFP. "While the US seems to be turning the corner with the coronavirus pandemic, safety continues to be the most important objective, and treasury and finance professionals remain cautious with their short-term investments."

The short-term investment picture

Organisations continue to maintain slightly more than half of their short-term investments in bank deposits, as this year’s results show that the typical organisation currently maintains 52% of its short-term investment portfolio in bank deposits (compared to 51% in 2020). This allocation represents a six-percentage-point increase from 2019 and a four-percentage-point increase from 2018.

The survey also found that when selecting a mutual fund, 65% of treasury and finance professionals cite fund yield as a primary driver. For 55%, a primary driver is fund ratings, while 45% cite fixed or floating NAV.

The share of respondents (60%) who reported that their organisations either have plans to prepare operating cash and investment portfolios for LIBOR or are researching the process for doing so is significantly larger than the 39% who reported the same in last year’s survey.

"Throughout the last year, safety and liquidity have still reverberated as paramount with investment professionals as US money market fund balances remained elevated," continued Laurie Brignac, CIO, Global Liquidity at Invesco. "As we re-emerge from lockdown and adjust to the ‘new normal,’ investors may consider a strategic segmentation approach with their cash holdings to uncover opportunities in our current market climate."

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