The Association for Financial Professionals, which represents corporate treasurers and major investors in institutional money funds, began its “AFP2020 Virtual Experience” last week. So far, there have been just a handful of sessions discussing cash investments, including one entitled, “Aligning Investment Strategy with Your Company’s Operations.” This panel, led by Sebastian Ramos of ICD, featured Kim Kelly-Lippert of American Honda, Ryan Seghesio of California ISO and Tom Wolfe of MGM Resorts. We excerpt from this presentation below.
Kelly-Lippert says, “Pre-covid, we were big proponents of the prime funds…. In addition to the prime funds, we utilize government money market funds, bank deposits, euro time deposits, and then for some additional yield pickup we occasionally took advantage of a very selective [group of] asset-backed securities. But the majority of our liquidity was available overnight. We redeem the funds out of our money market funds for our daily obligations.”
Wolfe tells us, “At MGM Resorts, we see bank balances decline in advance of big events like New Year’s Eve, March Madness or Memorial Day weekend, as our properties stock up on physical cash at the property level. Then after big events, excess cash is deposited and our bank balances increase…. Considering all of our portfolios combined, we’ve [held] over $5 billion of cash investments…. We invest in both government and prime money market funds, bank deposits and occasionally time deposits. Our experience has been that the foreign banks tend to pay the highest interest.”
Seghesio comments, “We actually have very predictable cash flows. It makes the investment strategy a little easier…. Customers have to post collateral to trade in our markets [and] we have a large number of sub accounts for the customer collateral. We take that collateral, we spread it equally amongst four government money market funds. This was our strategy that we chose to do during money market reform, to move this into government funds, mainly because we felt that the economic conditions that could cause prime funds to have problems…. So, this is a government only investment strategy.”
He continues, “Moving over to [our] corporate cash. As I said, with the predictable cash flows that happen for us on a weekly basis, it’s made our investment strategy a little bit easier…. We segment our cash [into] operating cash, reserve cash and strategic cash. In our case, operating cash was really just if we need to kind of keep overnight liquid, to handle the surprises during the week. We use prime money funds for that. Reserve cash is cash that we really know there’s a known need for it in the future, but we don’t need to keep it as liquid as an overnight money market fund. We worked with ICD and use the ultra-short funds for this purpose.”
Ramos adds, “We are seeing a number of clients start to look a little bit further out on the curve and take advantage for that more strategic cash, in particular, a longer duration product than the traditional money market. Just to give a brief bit of background on ICD … we have about 400 active clients that are spread across 65 industries and with entities located in 43 countries [with] approximately about $210 billion right now running through the platform. And our average client balance is around $500 million or just there above. So, what that does is it gives us a pretty good view of what’s going on in the marketplace overall, particularly in the corporate marketplace.”
Source: Crane Data