Corporates hoarding cash on their balance sheets rather than investing the capital had become a global phenomenon since the 2008 financial crisis, said Nedbank group head of cash solutions investments Sean Seger.

Seger was speaking at the fourth Annual Nedgroup Investments Treasurers Conference that was held in Johannesburg, Gauteng, earlier this month.

The most recent South African Reserve Bank figures showed that nonfinancial corporates were holding a record-high R685-billion in cash, he said, noting that interest rates, currently at near 40-year lows, presented a challenge to corporate cash managers. Regulatory Environment

“There is still a clear need to better invest sur- plus cash on balance sheets. Leaving this idle is inefficient and a barrier to the economic development of the country,” stated Seger.

However, he said that, amid an uncertain political, economic and regulatory environment, it was a reality that clients faced a daunting decision in terms of risk and reward when choosing how to deploy such capital.

Part of facilitating a greater sense of ease among corporates when it comes to deploying this capital, he noted, was to create opportunities for key influencers and decision-makers internationally and locally to connect and engage in various challenges and solutions on this issue.

“For this reason, the Nedgroup Investments Cash Solutions team, a division of Nedbank Wealth, launched the yearly Treasurer’s Conference in 2012 to create context and facilitate dialogue on the key challenges facing corporate treasurers, and determine ways in which cash can be more productively managed,” he said.
A key challenge that the conference focused on was how to best increase the yield earned on excess capital while it was awaiting deployment without compromising on liquidity or credit quality.
"In this regard, money market funds provide a viable and convenient solution, as the pooled investment structure provides diverse exposure and economies of scale, as well as daily access to cash at competitive short-term yields in a highly regulated environment,” Seger pointed out.
The funds also offer an alternative to bank deposits and direct cash investments, with 30% to 40% of corporate cash in Europe and the US currently invested in money market instruments.
“With more than R240-billion of South Africa’s corporate cash standing to benefit from a net yield of 6.5% in money market funds, as opposed to the –4% to 5.5% per year return on a typical corporate call account, clients truly benefit from the increased-yields without undue risk,” he said, pointing out that, last year alone, the South African money market funds paid clients about R2.5-billion in additional interest, besides their best call rate. Independent Trustees

Many money market funds are AA+-rated and subject to strict governance from regulators and the independent trustees, with watertight investment guidelines.

All investment activity, Seger stated, happened in the fund, negating the need for clients to have to negotiate and trade instruments; this enabled investors to have immediate access to their funds, but to earn the equivalent yields of fixed deposits while they were invested in the fund.