Final MBA dissertation (published): "Exploring the top European corporate treasury decisions on short and mid-term investment alternatives" ©

Exploring the top European corporate treasury

decisions on short-term investment alternatives

ANTONIO SANCHEZ

MASTER OF BUSINESS ADMINISTRATION
DISSERTATION

2008

Exploring the top European corporate treasury decisions on short-term investment alternatives

UNIVERSITY OF LONDON

- The School of Management and Organizational Psychology -

MASTER OF BUSINESS ADMINISTRATION
- DISSERTATION -

Exploring the top European corporate treasury
decisions on short-term investment alternatives.

MBA Candidate - Dissertation Author: Antonio Sanchez
Student ID: 079089849
Module Code: ITG M02
Program: University of London and University of Sunderland - MBA 2008
Approximate Word Count: 21, 201

London, United Kingdom
September, 2008

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“The rational man adapts himself to the world; the irrational man persists in trying

to adapt the world to himself. Therefore all progress depends on the irrational

man” George Bernard Shaw

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UNIVERSITY OF LONDON - BUSINESS SCHOOL

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Abstract

Globally funds available to corporate treasurers have increased vastly over the

past two decades as one of the most obvious trends in decisions made by the top

UK corporate treasurers has been an increased investment in money market

funds as there has been a rapid increase in sums allocated to these short term

investments in Europe and the UK. Indeed by far the largest percentage of

pooled investments in the UK is allocated to money market funds according to

the latest JPMorgan Global Cash Management Survey

There are a number of potential reasons for this increase in investments in

money market funds. One answer is that money market funds provide the best

possible yield of any short term investment and indeed according to Ellerback

(2003) “when it comes to cash balances with a time horizon of less than three

months, there is little to rival money market funds”.

In addition to this, one of the most important recent pieces of legislation in the

field of corporate treasury has been Basel II. The Basel Accords are a set of

agreements, providing recommendations with regards to banking regulations with

regards to capital, market and operational risk. These new set of regulations

have definitely favoured these kind of low risk and competitive yield investments

for UK corporate treasury.

Basel II along with the Capital Requirements Directive and the Markets in

Financial Instruments Directive new legislations are and will make investments in

money market funds considerably more appealing taking in account that the

amount of investment in money market funds in the US is considerably greater

than in the UK and thus it is the case that there is large room for growth in money

market funds in the UK.

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However not all money market funds have been successful, partly due to the fact

there are funds which are not completely free of risk, despite a Triple A rating.

Therefore a lesson of the sub prime mortgage crisis is that still some money

market funds may offer risk which treasurers should avoid. In fact one of the

more striking trends in recent decisions made by UK corporate treasurers with

regards to short term investments has been the continuing increase in

investments in money market funds, despite the current economic climate.

Indeed the Institutional Money Market Fund Association reported in May 2008

that funds under management in Europe rose to new levels to over £317 billion,

an increase of 35% over the last year (http://www.immfa.org).

This is perhaps especially true in light of the subprime mortgage crisis, since

liquidity issues may encourage cash managers to avoid making riskier

investments. However, Poole (2008) warns corporate treasurers of the risks of

money market funds, and that simply because it has a Triple A rating it does not

follow that it is immune from risk.

Finally there appears to be two separate trends in the financial decision making

of corporate treasurers in light of the recent liquidity issues in the banking sector.

One is the increased investment in money market funds occurred due to the

liquidity and security that such investments provide. However it is not the case

that investment has increased in all money market instruments. Indeed it seems

to be the case that the asset backed commercial paper market has suffered, with

those issuing such papers not matching investor’s demands. This has resulted in

decreased investment in asset backed commercial paper and it appears to be the

case that corporate treasurers did not originally realise the risk involved with

investing in this market which could have indeed exacerbated the latest credit

crisis.

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Table of Contents

Abstract ……………………………………………………………… Page 5

Chapter 1: Introduction & Summary
- 1.1 Introduction to Dissertation .….….………………………… Page 9
- 1.2 Aims and Objectives ...…………………………………….. Page 12
- 1.3 Chapter Summary……………………………………………Page 12

Chapter 2: Literature Review
- 2.1 Short Term financial decision making …………………….. Page 14
- 2.2 Attainment of Objectives ……………………………………. Page 28
- 2.3 Summary and Conclusion….……………………………….. Page 29

Chapter 3: Methodology
- 3.1 Personal Development Review ……………………………. Page 31
- 3.2 Introduction to Research …………………………………… Page 33
- 3.3 Data Collection Methods & Sampling .………………….… Page 34
- 3.4 Analysis of Data ………………….………………………….. Page 39

Chapter 4: Background
- 4.1 Industry Background......................................................... Page 41

Chapter 5: Findings & Discussion
- 5.1 Introduction to Findings………………………………………Page 44
- 5.2 Key Findings on Primary Research ……………………….. Page 44
- 5.3 Key Findings on Documentary Analysis ………………….. Page 57
- 5.4 Description and Discussion……………………………….…Page 63

Chapter 6: Conclusions
- 6.1 Dissertation Conclusions…………………………………… Page 66
- 6.2 Future and Recommendations…………………………….. Page 68

References & Bibliography…………………………………….. Page 70
Appendices……………………………………………….…… Page 72

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Table of Figures

Figure 1. Calculation of the regulatory capital before Basel II...... Page 21

Figure 2. Credit rating and risk weighting criteria….………......... Page 21

Figure 3. Project development and task time scales.................... Page 39

Figure 4. European money market fund growth chart…………….Page 57

Figure 5. Variety of pooled investments used by location………..Page 58

Figure 6. Criteria for investment instrument selection...................Page 60

Figure 7. Criteria for rejection of pooled investments………… …Page 61

Figure 8. Growth in money market fund investments - 2007…….Page 63

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Chapter 1: Introduction & Summary

1.1 INTRODUCTION

This dissertation will revolve around short term investment alternatives available

to UK corporate treasurers, and will discuss and analyse the decisions made by

treasury management with regards to these options. Treasury in a company is

responsible for ensuring that there is the necessary cash and liquidity available to

meet the company’s requirements. In particular treasury gives advice on

businesses to be invested in, organises funding for such investments and

manages risk within an organisation.

UK corporate treasurers have a range of potential options in which to make short

term investments. Globally funds available to corporate treasurers have

increased vastly over the past two decades, with the cash on Standard and

Poor’s company balance sheet growing six fold between 1996 and 2006 (Cited in

Ellerbeck, 2008), rising to £600 billion. With these considerable surplus funds it is

important to understand the trends that underlie the industry, which can aid

analysis of decisions corporate treasurers have made and can inform future

investments and risk management.

The types of investments made by UK corporate treasurers can broadly be

divided into two categories, namely bank deposits and pooled investments. A

pooled investment is one which involves a variety of investors placing their

placing money in a fund in order to make investments. A third category of

investment, direct investments, consisted of only 2% of investments made by

corporate treasurers in the UK in 2007 (JP Morgan Global Cash Management

Survey 2007), and for this reason will be largely ignored in what follows.

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By far the largest percentage of pooled investments in the UK is allocated to

money market funds (71% in 2007, JP Morgan Global Cash Management Survey

2007). A money market fund is intended to provide short term, low risk

investments which provides easily accessible cash funds. The fact that money

market paper can be bought or sold at any time, and that yields provided are

generally seen to be competitive and secure encourage investment in them.

These funds pool their resources in order to obtain money market securities. The

money market involves borrowing and lending periods which are generally a year

or less (Cook and Laroche, 1993)

There are a variety of money market securities issued by governmental

departments, financial institutions and also by large corporations. There are a

range of possible securities in which investments can be made. The most

prevalent possible money market instruments which can be used for investment

are as follows:

Commercial paper – A short-term unsecured promissory note issued by

companies and by governments. Maturity can occur any time from the day

after being issued to 270 days after issuance. (Hahn, 1993)

Asset-backed commercial paper – Commercial paper issued by a company

backed with assets, which are usually some form of receivable. (Hahn, 1993)

Certificates of Deposit (Time Deposit) – Fixed term bank deposits, which

normally pay a fixed amount upon maturity. (Morris and Walter in Cook and

Laroche 1993)

Government paper (also known as treasury bills) - Short term securities

issued by governments, sold at auctions to finance governmental deficits

(Cook and Laroche 1993)

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Repurchase agreements – “A type of transaction in which a money market

participant acquires immediately available funds by selling securities and

simultaneously agreeing to the same or similar securities after a specified

time at a specific price” (Lumpkin in Cook and Laroche, 1993 p59)

Floating rate notes - Notes with variable interest rates, which also offer a

return of their face value at maturity. They are issued by banks and

corporations.

The importance of money market funds for corporate treasurers and the fact that

such a large percentage of pooled investments in the UK are allocated to this

instrument are central factors in my focusing on them in this dissertation.

A further motivation comes from my work in the asset management division of

the ICAP plc Group, through which I have seen the importance of short term

investments in ensuring sufficient liquidity in running a company’s everyday

operations.

Short term investments are also of particular interest due to the notable changes

in decisions made by corporate treasurers. This includes the general trend

towards allocating funds to pooled investments, and I will discuss the extent to

which this is the result of the appeal of low risk funds, as opposed to decreasing

quality of bank deposits. In the shorter term other factors have altered general

trends, notably the introduction of Basel II and recent liquidity issues in the global

banking system, as a result of the subprime mortgage crisis.

I will discuss the extent to which these features have determined recent decision

making by corporate treasurers and the extent to which these decisions have

been successful. This will be used to assist analysis of the potential future trends

in short term investments by corporate treasurers.

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1.2 AIMS & OBJECTIVES

The aim of this project is to explore and analyse decisions made by FTSE 100

firms with regards to short term investments, focused in particular on money

market funds and the money market securities which can be invested in. I will

attempt to provide reasons for and analyse the success of general and short term

trends in investments. I will also look to discuss the circumstances under which

certain securities are appealing investments, and use this to assist the analysis of

the decisions made by corporate treasurers.

With these aims in mind I have established a range of objectives:

To understand the alternatives available to corporate treasurers, and the

circumstances and economic climates in which an alternative is

preferable to another, and how these factors have determined decisions

made by UK corporate treasurers.

Be able to point to future trends in short-term investments and how these

trends could and will affect further treasury decision making.

Be able to appreciate the role of cash managers or corporate treasures

in a company and to understand their role in guaranteeing that there is

sufficient cash to ensure the successful operation of the company.

1.3 CHAPTER SUMMARY

In the next chapter I will conduct a literature review, focussed on the reasons that

decisions might be made by corporate treasurers. I will highlight the general trend

towards increased short term investment in the money markets by UK treasury

departments, and will also assess the reasons that certain money market

securities are seen as preferable to others.

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I will also discuss views on the relative importance of Basel II in making recent

corporate treasury decisions and assess the extent to which corporate treasurers

did not take sufficient account of risk in light of recent liquidity problems facing

companies listed in the FTSE 100 index.

Chapter 3 will involve outlining my methodology in conducting the research. This

will be followed by an outline of the industry background against which the

research can be assessed. I will start this chapter by discussing my personal

development review and following; I will outline the data collection methods and

will also present the primary research design and secondary research sources.

Chapter 4 will involve a brief outline of the industry background and the key roles

involved in the industry such as cash managers and indeed discussing briefly the

background and responsibilities of a treasurer in an organisation.

On chapter 5 I will present and analyse my findings, attempting to relate this to

the views and academic thinking presented in the literature review. On this

section I will outline the key findings for both the primary and secondary

investigation.

On the final chapter of this dissertation I will conclude on the trends discovered in

my research, and will point to potential future trends and suggest which decisions

that should be taken by corporate treasurers.

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Chapter 2: Literature Review

2.1 SHORT TERM FINANCIAL DECISION MAKING

The literature review will be conducted as follows. At first I will discuss the longer

term trends in decisions made by corporate treasurers with regards to short term

investment alternatives and decision making. This will be focused on the increase

in investment in money markets and will discuss trends in investments in certain

money market securities. In particular I will highlight the increased commercial

paper market, and also the more recent increased investment in asset backed

commercial paper and floating rate notes. I will then proceed to investigate two

more recent circumstances which may have affected corporate treasurer’s

decision making, Basel II and recent liquidity problems following the subprime

mortgage crisis.

The increase in investments in money market funds

One of the more notable general trends in short term investments has been the

rapid increase in sums allocated to money market funds. One way to illustrate

this would be to point to the fact that European offshore funds have grown from

US$70 billion in 2000 to US$496 billion dollars in 2007 (Offshore Money Fund

Report™ May 2007, see http://www.immfa.org). The trend is also highlighted by

pointing out that European money market assets increased from US$7 billion in

1997 to US$153 billion in 2003 (Moneyfund Vision 1998 and ICI statistical

release as of 27/03/2003, cited in Ellerbeck 2003). There are a number of

potential reasons for this increase in investment. One possible answer is that

money market funds provide the best possible yield of any short term investment.

Indeed Ellerback (2003) has claimed that when it “comes to cash balances with a

time horizon of less than three months, there is little to rival money market funds.”

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Clearly assessing the potential yield is an important process when a corporate

treasurer is deciding whether to make a certain short term investment. This is

highlighted by the fact that yield was perceived in the JP Morgan Global Cash

Management Survey as the second most important factor in determining which

AAA-rated money market fund a corporate treasurer or cash manager chooses to

invest in (JP Morgan Global Cash Survey 2007, p17).

Note that money market instruments are rated by firms such as Standard and

Poor’s or Moody, with a AAA rating requiring the average weighted maturity of

instruments not to exceed 60 days (Ellerback 2003). The fact that money market

allows corporate treasurers to pool investments means that a greater range of

instruments can be invested in, and those with the highest potential yields can be

added to the portfolio.

It is perhaps not surprising that yield should be seen as such an important factor

in encouraging investment in money market funds. The yield that such returns

provide are undoubtedly essential to providing the cash needed for the

successful running of a company, and Pike and Neale have described such cash

as “the lifeblood of the business” (2006, p7). High yields enable corporate

treasurers to be able to optimise liquidity, which allows the treasurer to mobilise

funds as necessary.

Yet yield is not the only determining factor in the increased investment in money

market mutual funds. Cook and Laroche (1993, p1) call attention to the fact that

money market instruments are “characterised by a high degree of safety of

principal.” It is this security provided by money market mutual funds which is

essential to its appeal to corporate treasurers. Indeed Ellerback (2003) claims

that “security within a fund is also enhanced through robust credit research

ability, efficient administration and custody.”

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Mackenzie (2000) highlights the fact that money market funds are frequently

assigned a Triple A rating, whereas banks in Europe often only achieve a rating

of AA. The large sums of cash involved in money market funds allow investors

the opportunity in diversifying into a number of money market instruments, which

should increase the security of these investments.

It is difficult to emphasise one factor over the other. In fact it is likely to be the

case that it is a combination of the two aspects of a money market mutual fund

that have made them such appealing investments for UK corporate treasurers.

This is the view of Mackenzie (2000), who claims that the appeal of money

market mutual funds derives from the fact that they offer “a better mixture of

security and return than a bank may be able to offer, but without compromising

liquidity.”

Trends in investment in differing money market instruments and reasons

for investment in differing money market securities

In exploring the UK corporate treasurer’s choices of short term investments it is

important to understand the variety of potential money market instruments that

can be invested in. It may be the case that investments in money market funds

increase, and yet the portfolio of such instruments change. For instance money

market funds with a higher percentage of assets in bank deposits may become

more attractive, whilst funds with a high proportion of assets in commercial paper

are less appealing. In this section I will discuss trends in investments in certain

money market instruments.

The largest percentage of short term investments made by UK corporate

treasurers is in bank deposits.

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This involves the market arranging a deposit for some period of time, allowing a

bank which is short of funds to borrow funds in from a bank which has a surplus

amount of funds. These have continued to be attractive, along with certificates of

deposit, which have been issued by banks since 1968. Ellerbeck (2008) argues

that since certificates of deposits are issued by both banks and building societies,

they can appear more secure than commercial paper, which might well be issued

by a company which comes under less regulatory scrutiny.

However since the late 1980s the removal of regulatory barriers allowed

participants to deal with each other using financial institutions such as banks as

traders (as opposed to deposit traders). This along with the decline in quality of

banks’ credit has led to it being possible for reputable companies to obtain

cheaper finance in capital markets. Because of this there has been a vast

increase in the amount of commercial paper issued. Commercial paper is a

promissory note that must mature in less than 270 days, with the majority of

paper issued maturing in less than 40 days. The investor will purchase notes at

less than the face value and receive the face value on maturity. Hahn (1993) has

highlighted the importance of high interest rates and security of commercial

paper in encouraging the growth of the commercial paper market in the US in the

latter part of the last century.

The commercial paper market in the US experienced rapid growth, with the

amount of commercial paper outstanding increasing from US$47.7 billion to

US$528.1 billion. Commercial paper became a more significant part of money

market fund assets, having been 11% in 1975 to 42% in 1991 (Board of

Governors of the Federal Reserve System, cited in Hahn 1993).

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This growth was not immediately mirrored in Europe, with growth not appearing

until the late 1980s (a German commercial paper market only appeared in 1991).

Nonetheless the commercial paper market has responded in Europe. The growth

has continued into this decade, with the European commercial paper market

growing by 68% in the two year period ending in June 2003 (Euroclear, cited in

Bedford 2003). The reasons emphasised by Hahn are undoubtedly important

factors in encouraging growth in Europe. Bedford (2003) agrees with Hahn,

claiming that investor’s interest in commercial paper is driven by “appetite for

fairly priced, good quality paper.” Ellerbeck (2008) also argues that one of the

major advantages of investing in commercial paper is the fact that the markets

are highly developed in Europe and in the US, which allows for geographic

diversification.

More recently there has been UK corporate treasurers have increasingly invested

in money market funds with a larger percentage of asset backed commercial

paper constituting their portfolio mix. The risk of commercial paper is tied

exclusively to the issuing firms commercial and operational risk, whereas “with

asset backed commercial paper the paper's risk is instead tied directly to the

creditworthiness of specific financial assets” (Hahn in Cook and Laroche 1993,

p121). Ellerbeck (2008) argues that these instruments offer more security than

standard commercial paper, being protected by a form of credit enhancement.

This advantage of asset backed commercial paper can be added to the

advantages of commercial paper mentioned above, namely the flexibility and

liquidity of these money market instruments. Note however that asset backed

commercial paper have a more complex structure, and which in times of liquidity

uncertainty may mean that the amount of investment in asset backed commercial

paper may decrease.

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It is also worth noting that asset backed commercial paper has some distinct

advantages over other money market instruments which corporate treasurers

may choose to invest in. Negotiating repurchase agreements will incur costs, and

require considerable work to obtain a fair price. Ellerbeck (2008) points out that

Floating Rate Notes take over a year to mature (and thus do not provide the

same flexibility as asset backed commercial paper), and also require

considerable minimum denominations in order for a corporate treasurer to make

an investment. Despite this it is worth noting that growth may occur in these

money market securities also. This is particularly true of repurchase agreements,

where the pre-budget report of 2007 attempted to simplify the corporation tax

treatment of repurchase agreements (Deloitte industry release on the pre-Budget

Report, 2007).

Hence there are two notable trends in the decisions UK corporate treasurers

have made in particular money market instruments. One is the increased

investment in commercial paper, which despite happening later than in the US

has occurred because of the security and liquidity offered by such investments.

More recently there has been increased investment in asset backed commercial

paper, in part a result of the increased security such instruments are supposed to

provide. However, below I will discuss the extent to which the complexity of these

instruments has obscured some of the risk involved.

The effect of Basel II and other regulations

One of the most important recent pieces of legislation in the field of corporate

treasury has been Basel II. The Basel Accords are a set of agreements, providing

recommendations with regards to banking regulations with regards to capital,

market and operational risk.

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Basel II focuses on three aspects of that affect the success of regulations in

ensuring financial institutions have sufficient resources to reach obligations,

namely market discipline, supervisory review and minimum capital requirements.

In Europe it was implemented by the European Union through the Capital

Requirements Directive, approved by both the European Council and the
st
European Parliament. It came into effect on the January 1 2007. Note however

that its implementation is a gradual process. As an example 100% capital floor

for the Internal Ratings Based (IRB) Advanced Approach will not come into effect

until 2010 (Rose, 2007).

It is worth noting that Basel II initially faced a certain amount of criticism. In

Danielsson et al (2001), written by a selection of noted academics at the London

School of Economics, it was argued that Basel II argued that Basel II left for

“considerable scope for underestimation of financial risk” (2001, p3), which could

lead to “complacency on the part of policy makers and insufficient understanding

of the likelihood of a systematic crisis” (2001, p3). They also argue that the fact

Basel II encourages an ‘internal ratings based approach’ to credit risk, which

forces homogeneity amongst market participants that can deepen a crisis. They

claim that if a banking system is overly homogeneous then there may not be

sufficient variety in the system to cope with liquidity issues. The implementation

of Basel II could have a number of consequences for the amount of investment

by corporate treasurers in money market funds.

Before Basel II the capital adequacy rules made money market funds relatively

expensive to hold. For instance 100% risk weighting was assigned to money

market funds when making regulatory capital calculations, in comparison to risk

weighting for traditional bank deposits and repurchase agreements, at about 20%

(Parry-Wingfield, 2006).

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Instead the regulatory capital required before Basel II can be calculated as

follows:

Figure 1. Calculation of the regulatory capital before Basel II:

Capital = exposure × risk weight × 8%.

Thus an investment of US$100 million in an AAA-rated money market mutual

fund (having a risk weight of 100%) will require a capital of US$8 million before

the Capital Requirements Directive. This can be compared with an identical

amount invested directly in a money market security (such as a bank deposit or

repurchase agreements) will require a capital of US$1.6 million (at 20%). Thus an

investment in a money market fund could require five times as much capital as

that needed for direct investment in a bank (Parry- Wingfield, 2006).

With Basel II, the weightings that are applied by a bank are decided by whether is

the rating used is the standardised approach or the internal ratings based

approach, which was criticised as shown above by Danielsson et al (2001).

Some indicative ratings are given in the table below:

Figure 2. Credit rating and risk weighting criteria:

Credit
quality 1 2 3 4 5 6
step

Possible AAA to BBB+ to BB+ to Below
A+ to A- Unrated
criteria AA- BBB- BB- BB-

Risk weight 20% 50% 100% 100% 150%

Basel Committee on Banking Supervision convergence of Capital Measurement and
Capital Standards June 2004 (Parry-Wingfield, 2006)

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Using an internal ratings based approach the risk weighting percentage attached

to an investment may be even lower. Thus the capital required in order to make

investments in a money market fund would be no greater than that required to

make direct investments in bank deposits or in money market securities. It seems

clear that these regulatory changes would encourage increased investment in

AAA-rated money market funds as opposed to bank deposits and repurchase

agreements, due to the decreased capital required to make such investments.

Thompson (2006) also argues that the new regulations introduced by the Capital

Requirements Directive should also be placed alongside ‘the new breed of Triple

A funds’ which he claims are now emerging. These are money market funds

which maintain their Triple A rating but adopt more market risk in order to be able

to offer increased returns.

However two points should be taken into account in assessing the relative impact

of the Capital Requirements Directive. The first is the comparatively recent

introduction of the legislation, and the fact the implementation is not yet fully

complete. Thus it is unlikely that Basel II has had its full impact of yet.

Indeed Rose (2007) claims that banks are “starting to investigate money market

funds, but it will require a change of investment behaviour driven by the balance

sheet management area before funds can expect to see significant inflows from

Banks.” Nonetheless it could well be argued that the decreased capital required

in order to invest in money market funds following the Capital Requirements

Directive will have a considerable impact in investment by UK corporate

treasurers in money market funds in years to come.

The second point to consider can be placed in context by the complaints of

Danielsson et al, especially in light of recent liquidity issues amongst companies

listed in the FTSE 100 index.

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If they are correct in claiming that the Basel recommendations had “chosen poor

quality measures of risk when better measures are available” (2001, p4), and that

the mechanisms used to measure risk do not sufficiently emphasise the extent to

which investment in money market funds are risky, then it is possible that

corporate treasurers would shy away from allocating funds to pooled

investments. This is perhaps especially true in light the subprime mortgage crisis,

since liquidity issues may encourage cash managers to avoid making riskier

investments. Poole (2008) similarly warns corporate treasurers of the risks of

money market funds, and that simply because it has a Triple A rating it does not

follow that it is immune from risk.

Indeed this point can be used to explain the fact that UK corporate treasurers

allocate a far lower percentage of funds to pooled investments than that allocated

by US corporate treasurers. Indeed the JP Morgan Global Cash Survey 2007

shows that treasurers in the US allocate 63% of their surplus cash to pooled

investments, compared to the 33% allocated by UK corporate treasurers (JP

Morgan Global Cash Survey 2007). Yet this is perhaps explained more effectively

by the comparatively recent introduction of money market funds in Europe, and

the fact that the Basel II legislation has only recently been implemented. This

point can be reinforced by pointing to the increased investments in money market

funds since the subprime mortgage crisis. Indeed iMoneynet, the leading provider

of money market mutual fund information and analysis, reported in December

2007 an increase of 23.1% in reported investments in money market mutual

funds from the end of June 2007 (Money Fund Report, available at

http://www.imoneynet.com). Thus it does not seem to be the case that corporate

treasurers have avoided allocating funds to pooled investments as the risk in

such investments is not properly weighted, contra Danielsson et al.

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The regulatory climate beyond Basel II may also explain why there is greater

investment in pooled funds by US corporate treasurers than UK corporate

treasurers. In the US, Rule 2a-7 of the Investment Company Act of 1940 offers a

“clear guiding regulatory framework” (Rose, 2007).

In Europe investment in money market funds is governed by self-regulation,

developing its own Code of Practice in February 2003 using the Institutional

Money Market Fund Association (IMMFA). Rose argues that for the European

money market fund to equal the success of the US money market fund it is

necessary to “continue to work for a European Rule 2a-7 equivalent regulatory

framework.” (Rose, 2007) This can help to explain why the impact of the Capital

Requirements Directive may have been limited, and yet it does seem to be the

case that the implementation of this legislation will encourage increased

allocation of cash to money market funds.

It is also worth noting one other regulatory change that may have a considerable

impact on investment in money market funds. The European Commission

published the Markets in Financial Instruments Directive (MiFID) in 2004

(directive 2004/39/EC of the European Parliament and of the Council). It was

incorporated in the UK by the Financial Services Authority’s (FSA) handbook of

rules and guidance and implemented in November 2007 (Traversa, 2008). MiFID

allows banks to invest client money into Triple A rated funds, offering higher

returns than typical bank deposits. Ellerbeck (2008) argues that MiFID will allow

“institutions greater scope to use AAA-rated liquidity funds instead of deposits.” If

this is the case then there is a further incentive for UK corporate treasurers to

invest in money market funds with a high percentage of assets in money market

instruments.

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The effect of recent liquidity issues in the banking system following the

subprime mortgage crisis

One of the more striking trends in recent decisions made by UK corporate

treasurers with regards to short term investments has been the continuing

increase in investments in money market funds, despite the current economic

climate. Indeed the Institutional Money Market Fund Association reported in May

2008 that funds under management in Europe rose to new levels to over £317

billion, an increase of 35% over the last year (http://www.immfa.org).

Poole (2008) has argued that the popularity of money market funds has

increased because of the liquidity they offer, clearly very important when there

are liquidity issues in the banking sector, such as that caused by the subprime

mortgage crisis. Indeed the Basel Committee on Banking Supervision chose to

highlight ‘the crucial importance of market liquidity to the banking sector’ (2008,

p7). This is coupled with the fact that money market funds are largely perceived

as secure investments, as emphasised earlier. This security of money market

funds, along with the liquidity they offer appear to make them ideal investments

at a time when corporate treasurers place investment security as a high priority.

In this way they represent a cautious investment when the outlook is hazardous.

Despite the success of increased investments in money market funds, it is worth

noting that some cash funds have been hit hard in the crisis. Furthermore there

have been changes in the composition of portfolios offered by money market

funds, with bank deposits increasing from 15% to 31% in the portfolio mix

(http://www.immfa.org). This contradicts the predictions made by Thompson in

2006, that there would be an increased number of investors looking for

alternative pooled investments. In particular he claimed that there would be

increased investment in asset backed commercial paper.

- 25 -


However asset backed commercial paper market has been one of the hardest hit

following the subprime mortgage crisis. In August 2007 the commercial paper

market in Europe was worth US$840 billion, with US$300 billion of that asset

backed commercial paper. The Times reported that in August 2007 HBOS was

forced to offer facilities to its Grampian intermediary in order to repay maturing
nd
commercial paper (The Times, August 22 2007). HBOS refused to pay the

higher costs demanded by investors, and instead chose to take the paper on its

own balance sheet. This decline was mirrored globally, with the total amount of

asset backed commercial paper in the US declining falling from almost US$1200

billion in June 2007 to below $800 billion in February 2008 (Financial Times,

February 2008)

To some extent this may appear surprising. Kashap et al (1993, cited in

Atanasova and Wilson 2004) found that following a monetary shock the amount

of US commercial paper issued increased, whereas bank deposits appeared to

remain flat. Gertler and Gilchrist (1993, cited in Atanasova and Wilson 2004)

suggested that this is because high grade borrowers (i.e. those with access to

the commercial paper market) can obtain funds more easily. Thus the

commercial paper outstanding would increase in relation to bank loans following

a monetary shock.

This clearly does not fit with the current trend, where the amount of commercial

paper and asset backed commercial paper issued has decreased as a result of

liquidity issues. The particular problem that asset backed commercial paper

appears to provide is that increases the chances that a firm will be required to

provide liquidity immediately (Basel Committee on Banking Supervision, 2008).

As an example, an agreement may exist whereupon firms agree to provide

funding if certain pre-occurred conditions occur.

- 26 -


Therefore it appears that investment in asset backed commercial paper is more

risky than it had originally been perceived to be, and thus there is an extent to

which corporate treasurers did not fully take into account the risks associated

with investment in such money market securities.

It could be argued that corporate treasurers presumed that since asset back

commercial paper are sponsored by banks they are secure, but due to their off-

balance nature banks had not taken into account the possibility of needing to

refund these vehicles.

This is in fact suggested by Richards (2007), who claims that asset backed

securities “have proved not to be as sound, or as liquid, as they appeared.” He

claims that the withdrawal of liquidity has led to some money market funds

invested in asset backed securities have struggled to price their net asset values.

Richards (2007) also highlights the fact that corporate treasurers have spread

their resources more widely (as a result of securitisation). This has led to a

decrease in transparency in the market, increasing uncertainty about losses and

speculation in the market.

Thus there appears to be two separate trends in the decision making of corporate

treasurers in light of recent liquidity issues in the banking sector. One is the

increased investment in money market funds. This has occurred due to the

liquidity and security that such investments provide. However it is not the case

that investment has increased in all money market instruments. Indeed it seems

to be the case that the asset backed commercial paper market has suffered, with

those issuing such papers not matching investor’s demands. This has resulted in

decreased investment in asset backed commercial paper, as corporate

treasurers have become aware of the risks such instruments provide.

- 27 -


Indeed it is important to emphasise the fact that not all money market funds have

been successful, partly due to the fact there are funds which are not free of risk,

despite a Triple A rating. Therefore a lesson of the subprime mortgage crisis is

that money market funds may offer risk which treasurers should avoid, and

research is necessary to assess the risk in a portfolio. Furthermore there are

some suggestions that the rating system for money market securities should be

adjusted.

Rating agencies such as Moody’s, Standard & Poor’s and Fitch are all paid for

awarding high credit ratings to the very debt obligations that they themselves

helped to structure, suggesting conflict of interest (Richards, 2007). Furthermore,

even if there is no conflict of interest it may be the case that the rating money

market securities from AAA to BBB do not make clear all aspects of risk. This

could be used to explain the failure of certain money market funds, and also the

asset back commercial paper market.

2.2 ATTAINMENT OF OBJECTIVES

In the introduction I set a number of objectives that I was attempting to achieve in

the course of this project. Here I outline the extent to which they have been

successfully realised in the course of my literature review.

Firstly I have clear gained an understanding of the alternatives available to

corporate treasurers. The literature review has required me to detail a number of

the money market securities in which corporate treasurers can make short term

investments, including commercial paper, asset backed commercial paper and

repurchase agreements. I have also discussed the attractions of pooled

investments, and in particular the role and appeal of money market funds.

- 28 -


I have also highlighted some of future trends that may exist in investment in

money market funds. In particular I have emphasised the effect that regulatory

changes may have in corporate treasurer’s decision making, especially the role

of Basle II and the Markets in Financial Instruments Directive. Achieving these

two objectives has also allowed me to achieve the third, since throughout these

discussions I have highlighted certain factors that a corporate treasurer must take

into account in order to be successful.

2.3 SUMMARY AND CONCLUSIONS

One of the most obvious trends in decisions made by UK corporate treasurers

has been an increased investment in money market funds. The academic

literature appears to highlight two particular factors which have been essential in

allowing this growth to occur. The first is the high yield offered by such money

market instruments, which is often greater than that provided by a bank deposit.

The second is the security such investments provide. The combination of these

two features of money market funds, without compromising liquidity, have made

them appealing investments for UK corporate treasurers.

There are also trends in investment in particular money market securities. The

commercial paper market has expanded massively in the last decade and a half,

mirroring the growth that occurred in the US in the 1970s and 1980s. Again the

crucial factors for this growth appear to be the security and yield that such

investments provide. It has also been stressed that the comparatively late growth

in Europe in this market is a result of the slow development of regulatory aspects

of the market.

More recently there has been increase in the amount of asset back commercial

paper issued, largely a result of the perceived security of these money market

instruments.

- 29 -


One of the major factors that could influence corporate treasurers’ decisions in

coming years is the introduction of new legislation affecting money market

instruments. One of the most important of these is Basel II. This imposes

changes in the ratings system which should mean that less capital is required in

order to make investments in money market funds, due to the lower risk

weighting because of different rating systems. The Markets in Financial

Instruments Directive also appears likely to encourage investment in money

market funds, as it allows banks to invest client money in AAA rated funds. It is

important to note that investment by UK corporate treasurers in money market

funds still lags considerably behind investment by US cash managers.

It seems unlikely that this is a result of the risks measures chosen by the Basel

committee, since the same regulations have been implemented in the US.

Instead it seems to be a result of the slow implementation of these regulations,

which means that they have yet to have their full impact. Therefore Basel II,

along with the Markets in Financial Instruments Directive appears likely to

encourage investment in money market funds in the long term. In the short term

money market funds have grown despite liquidity issues in the banking sector.

The academic literature appears to highlight the fact that this is a result of the

security and liquidity of the market. However it is important to note that this

success has not been uniform across the money market. The asset backed

commercial paper market has particularly suffered, and this seems to be a result

of treasurers becoming aware of the risk that such securities provide. Indeed it is

likely that corporate treasurers did not sufficiently heed the risk of these

securities. It has been argued that this is a result of the complexity of these

instruments, along with the granular nature of the rating system, which does not

take sufficiently into account all different risks that a money market security may

provide.

- 30 -


Chapter 3: Methodology

3.1 PERSONAL DEVELOPMENT REVIEW

In this section I will reflect upon the development of my skills and competences

derived from the experience of undertaking the dissertation and the entire Master

of Business Administration program experience. I will begin by making a short

critical review of my role and professional experience in the company and

industry I am involved with and my overall knowledge prior to entering the

Masters program, after that I will continue by assessing and discussing my

experience throughout the program and dissertation. Finally I will discuss the

extent to which my personal development objectives have been achieved and

mention the skills acquired in achieving those objectives. I will then conclude by,

briefly, mentioning the planning and implementation process for my own

professional development after the MBA program and indeed steps to follow to

be able to implement the knowledge and experience gained from this research

project.

As a short term investment solutions executive & junior broker within the asset

management of ICAP Plc group I have been exposed to the many recent

changes in the markets and indeed the impact on the ways to conduct business

for both investment execution and risk management in the UK and European

short term investment solutions market, as part of my experience I have been

closely related to liquidity funds and global corporate cash solutions for the main

UK and European corporate treasuries. It is noteworthy that my role in this

company and industry began in November 2007 via the postgraduate student

scheme and therefore it was of my particular interest to focus this final stage of

the Masters program on the subject of exploring and short term options.

- 31 -


Since I started working and analyzing funds in this industry in late 2007 my

overall knowledge in financial decision making prior to entering ICAP Plc and

concluding this dissertation was understandably limited in the sense that I

needed to acquire skills and practical knowledge in terms of the diverse

investment options, risks and market preferences and arrive to logical

conclusions and recommendations which will let me gain enough industry

knowledge and experience to act as advisor to investors and point them to the

appropriate solutions for their short term investment needs.

The ICAP Plc group, being the largest inter-dealer broker for financial

instruments in the world, offers large growth potential to executives like myself,

giving the chance for executives to understand the behavioral patterns of the

different markets within the financial industry before entering into a multi tasking

sales and broking arena where appropriate investment advisory and trade

executing skills are highly required and expected. My entire experience

throughout the Masters program has deeply engaged with my professional

objectives in the sense that I have been able to inter-relate with many different

individuals within same and different industries in different global markets who

are acting, as well as me, as analysts initially to gain strong knowledge and

experience to be able to act as advisors and managers. In essence the entire

program helped me refine my communication and inter-personal skills with

different cultures and understand different business procedures, ethics and

opinions. In terms of the dissertation, many other objectives have been achieved

as well, most importantly; decision making, data analysis and interpretation. For

more professional development information about the author please review the

“Background” section of this dissertation.

- 32 -


The following steps and implementation plan taking place now as I find myself

concluding the Master in Business Administration program, will be firstly to gain

an extra qualification / certification from the Financial Services Authority that will

allow me to participate with clients on an investment advisory role and in short

term to be able to advise, plan and execute short term investment deals on their

behalf, monitoring and controlling short term investment portfolios as well as

monitoring the asset allocation process on their behalf. Once I correctly apply all

the knowledge and experience gained from the Masters program I will be able to

develop deeply into the vaster and global asset management industry.

3.2 INTRODUCTION TO RESEARCH

I will research a number of hypotheses, which have been highlighted as general

trends in the literature review conducted above. The hypotheses to be

investigated will be the following:

The investment in money market funds has increased, and this has occurred

because of the security and yield offered by such investments.

Changes in legislation, such as the Capital Requirements Directive and the

Markets in Financial Instruments Directive will encourage corporate

treasurers to invest in money market mutual funds.

The recent liquidity issues in the banking sector have encouraged

investments in money market funds. However, asset backed commercial

paper provide more risk than originally perceived by UK corporate treasurers.

For this reason the amount of asset backed commercial paper outstanding

will fall.

- 33 -


3.3 DATA COLLECTION METHODS & SAMPLING

The primary research will be qualitative, for this we have adopted a survey

research design as this allows us to investigate answers from the participants in

an expanded context by letting the interviewee explain his/her thoughts in a more

comfortable and non space limited way. However, quantitative analysis will be

used to highlight patterns and make the analysis more robust using documentary

analysis extracted from documentary sources from within the industry such as

surveys, reports and publications. The findings will be compared to the theory in

context in order to describe the existing & future patterns. I will use a Snowball

Sampling Technique (Salhanik et al, 2004), which relies on initial subjects to

identify and reach additional subjects, this sampling technique is identified as

cost effective and ideal for difficult or cost prohibitive location of respondents.

I will perform research in my own organisation ICAP Plc, as being part of the

FTSE 100, along with another 8 Treasury /short-term investment managers

representing 8 different FTSE 100 companies; 6 face to face structured

interviews and 3 on-line interviews giving a total sample of 9 subjects from a

statistical universe of 100 companies (study based on FTSE 100, sample = 9%).

I have been granted authorisation to access figures and carry out the above

mentioned interviews & research. The structured interviews will contain 9 open

questions.

The industry cases and publications to be studied will all involve the same

characteristics; alternatives on short-term cash management, best investment

sources and their relationship with investors and industry dynamics. The method

of selection of these surveys, studies and interviews was through personal

networking and industry reference.

- 34 -


Data Collection Methods – Interview Structure & Description

As mentioned previously the interview structure will be built upon 9 open

questions, taking the first question as warm-up and introductory opening on the

role of a FTSE 100 corporate cash manager, following with the core interview

questions until the last question n.9 which will look more into the future of cash

management and short term investments. Also it is noteworthy that following the

pilot interviews, which were carried out before executing the real interviews, as

outlined on the task scheduled outlined on page 32, and the time constrains and

accessibility with our sample participants, the time target set out for each

interview was established at 45 minutes for a face to face interview and 30

minutes for interviews carried out on-line. The interviewees took in average 39

minutes for a face to face meeting and 26.5 minutes for an on-line meeting.

The interviews (for both means of communication) involve an opening with

greetings to the participant(s) and a brief introduction on the purposes of the

research project followed by a brief description on my profession and academic

background and intended outcomes of the dissertation to be used as ice-

breakers. Finally there will be a detailed explanation of the research ethics and

organisation and personal data privacy statement which are necessary to

reinforce the relevance and professionalism of this research.

The first question of the interview will be used as an introductory question to the

theme to be discussed and will involve a brief discussion from the interviewee on

how over the last years the treasury manager’s role has expanded with much

more involvement in executing investments to secure competitive returns for the

organisation.

- 35 -


The question in context is – How would you say your position as cash manager

of a FTSE 100 company is characterized now? This question will intend to

discuss how the interviewee feels about the expansion of his/her role.

Following, the second question, which will lead to entering the core part of the

interview will involve mentioning and discussing how generally treasury

managers utilize pooled investments and bank deposits for their cash

movements and, a small percentage (according to the latest Global Cash

Management Survey by JPMorgan) access direct investments, this will lead to

the question; what is your position on this and what are the main differences for

you? The main purpose of this question is to investigate broadly which kind of

investment is the participant involved in and which are his/her views in regards to

this type of investments.

The third question will involve asking the interviewee about the category

selections and with so many options in the market of short term investments how

do the cash manager notices the most competitive investment tools in the

market, which monitoring tools they utilize and how is the industry communication

helping or not.

The fourth question is straight-forward and asks the interviewee, which are the

main investment vehicles used by your organisation to manage short term cash?

Which are your preferences? The objectives of this question are obvious in the

sense that it attempts to research on the main investments options and

preferences. Just as above, the fifth question is also very straight-forward and

intends to investigate which are the main attributes that the cash manager

consider first before using the above mentioned investment vehicle(s).

- 36 -


The sixth question attempts to investigate the relevance of liquidity for the

participant and intends also to research on the importance of the banking

relationships of the participant and its organisation. The question itself asks what

liquidity represents for your investments and how important is for you to retain

and/or create strong banking relationships with your investment providers (funds,

banks, etc)

The seventh question is again straight-forward and it asks the participant about

the treasury management and execution (trading) is structured in general.

Following, the penultimate question, entering the closing and conclusions part of

the interview intends to reflect upon the current economic climate and investigate

how this has affected the financial decision making for the short term investments

and indeed the entire investment risk management.

The ninth and last question of the interview attempts mainly to conclude the

interview and investigate, following the current economic climate discussed

previously with the interviewee and taking in account the dynamics of the

financial industry in the UK, to how would the participant say the future of cash

management is looking and which investment options would you say will prevail

as the most competitive ones and why. The idea of this last question is to close

the interview which will help me build up on my final dissertation conclusions and

recommendations as in which direction is this industry heading and to finalize the

investigation with the participant in a less formal way with a less core

investigative question. This will let the participant and me converse and discuss

about the future of the industry and perhaps the roles of the cash manager

involving technology and new ways to enhance security on short term

investments.

- 37 -


Research Ethics and Internal Validity & Reliability

It is important to state that the individuals/organisations involved in the research

of this project will be given a clear description of the purpose and intended

outcomes of the research stating the purposes of this dissertation. The type of

information required for the research will be stated as the policy for anonymity

and confidentiality. It is stated that we will disclose the names of the

organisations participating on this research but no personal data of the

interviewees such as names, positions or contact details.

Internal Research Validity: Enhanced internal validity y performing

semi-structured interviews with open questions supported by the

literature theory and pilot interviews to ensure accuracy and relevance.

External Research Validity: High degree on external validity by

analysing multiple studies and surveys with real impact on future trends

and preferences.

Research Reliability: Reliability of the research will be controlled by

using inter-rater or Inter-Observer reliability which will assess the degree

to which different investors (observers) agree when measuring the same

research (Bazovsky, 2004) by using industry surveys plus supported by

the interviews.

Project Target Timescale

The literature review was performed as a background literature search to help me

formulate research ideas and support the models to be implemented. All

interviews and meetings were confirmed during Apr - 2008. The data analysis

will help me construct the dissertation drafts during Jul - 2008.

- 38 -


It is relevant to mention that I have been involved in the research of this industry

since Dec - 2007 and involved in the analysis of the dynamics on investor’s

decisions as part of my role since my employment with the above mentioned

organisation in Oct - 2007. Below, the task chart for the project:

Figure 3. Project development and task time scale:

3.4 ANALYSIS OF DATA

As outlined before, the documentary research and analysis will also be

qualitative, although the trends highlighted by this qualitative analysis will be

compared with quantitative data obtained from a number of sources. The most

significant amount of data will be taken from the JP Morgan Asset Management

Global Cash Surveys. These have been conducted since 1998, and thus provide

a range of date which can be used to assess the hypotheses and to analyse

trends in decisions made by corporate treasurers.

- 39 -


In the most recently published survey from 2007 339 responses were received

from treasurers across the globe. Half of these came from companies with a

market cap of over US$5 billion (http://www.treasurers.org/gcmsurvey).

This is an increase from the 61 responses offered in 2001 and the 206

respondents in 2006. The largest percentage of respondents was from the UK

(23%) (http://www.treasurers.org/gcmsurvey). This offers an additional rationale

for the survey forming a significant secondary source in this project.

Note that the majority of surveys in 2007 (290 out of 339) were conducted online.

The surveys were not anonymous, and therefore it is necessary to be aware that

the cash managers who responded may lean towards hedging any criticism. It is

important to note also that the survey may have further limitations. By its very

nature it simply takes the opinions of corporate treasurers and cash managers,

and thus may not highlight potential future trends if they are not commonly

thought to be likely to occur by treasurers. In other words, it is likely that the

survey can be a useful source in ascertaining what investments treasurers

believe will be attractive, but this may not be decisive in showing what the most

appealing investments actually will be.

Also as previously outlined and for the reasons mentioned above I will also use a

range of other sources in my research. Data has been obtained from my own

company, ICAP Plc, a FTSE 100 company. This information can be found at

www.icap.com. I have also obtained statistics about European money market

funds from the Institutional Money Market Fund Association (IMMFA), in order to

compare the trends highlighted in the surveys. This will be compared with data

from a number of rating agencies, such as Standard and Poor’s and Fitch’s. I will

also use statistics from iMoneyNet (www.imoneynet.com), a leading provider of

money market fund information and analysis.

- 40 -


Chapter 4: Background

4.1 INDUSTRY BACKGROUND

As previously outlined this project will involve analysing the UK’s top corporate

treasury cash management and their preferences on short-term investment

alternatives such as the money market fund industry, its growth opportunities and

an overview on the effects on investors and future trends. As corporate investors

constantly seek to enhance their cash management procedures and to place

their available cash as investments on these instruments analysing yield, risk and

liquidity in comparison to other short term investment alternatives it is very

important for us to understand the complexities, structure and general

background of this industry and its key player or decision maker such as the

corporate treasurer or corporate cash manager.

There are a range of aspects to the role of a corporate treasurer. Cash

management is typically seen as its most important area for a treasury

department; and indeed in the JP Morgan Asset Management Global Cash

Survey 2007 over 50% of respondents claimed that it was the most important

part of a corporate treasurer’s job. Cash management involves predicting the

company’s needs to in order for the successful day to day running of the

business. The corporate treasury department would be responsible for the short

term borrowings and investments the company make in order to meet those

requirements. Indeed Pike and Neale (2003) explain how “Cash management is

the art—and increasingly the science—of managing a company’s short-term

resources to sustain its ongoing activities, mobilise funds, and optimise liquidity

by efficiently utilising the organisation’s surplus cash and minimising risk at the

same time”

- 41 -


Cash management itself can be separated into a variety of particular

responsibilities. A cash manager would need to manage bank accounts and bank

documentation. Furthermore they would need to be aware of techniques to

concentrate cash, such as notional pooling and zero balancing. A cash manager

is also responsible “for responsible for regulatory, tax, legal and other cash

concentration/transfer issues such as exchange controls, insolvency, central

bank reporting, withholding tax, transfer pricing” (Association of Corporate

Treasurers, http://www.treasurers.org, 2008). The role of the cash manager, in

each case, is to ensure that there are sufficient funds for the company to

continue in business until the completion of the cash flow cycle. However, each

cash manager will perform a very different role, face different challenges, and

employ different cash management techniques to assure their company’s

ongoing operation and liquidity. Liquidity should not be confused with profitability

or net worth. It is possible for a company that is profitable and that has significant

assets to go bankrupt from lack of operating (or working) capital.

Other important parts of a corporate treasurer’s job are forecasting cash flow and

risk management. Risk management involves understanding the business and

financial risk a company is exposed to. In particular, when making an investment

a treasurer must be sure that the returns that the investments offer must be

considerable enough as to make the risks worth taking. They may need to

assess the risk of different money market securities, such as commercial paper,

asset backed commercial paper and repurchase agreements. These risks can be

managed in order to limit them in a way best suited to the investor’s financial

objectives. Cash flow forecasting involves predicting the cash available to a

company, and may involve both long and short term forecasts (Association of

Corporate Treasurers, http://www.treasurers.org).

- 42 -


My own background in short term investments has been in working for ICAP, a

FTSE 100 company. ICAP describes itself as world’s premier voice and

electronic interdealer broker (www.icap.com). The group provides a range of

financial products, as well as date, commentary and indices.

ICAP’s electronic broking and asset management businesses felt the positive

impact of higher levels of the recent market volatility. Specifically, the group

revenue rose by 18% to £1,304.4m and the electronic revenue increased by 38%

to £273.9m, the group continues to invest in technology, particularly further

upgrades to the group's electronic broking platforms due to the recent

investigations and opportunities such as money market fund investment

platforms for more secure and liquid options. (www.icap.com, 2008). ICAP

recently launched a multi lateral trading platform for corporate treasurers offering

multi-bank and multi-currency access to corporate treasurers for cash

management; where I work as short term investment solution sales and junior

broker.

For more information about my (the author’s) personal and professional

background please review the section “Personal Development Review” within the

Methodology chapter.

- 43 -


Chapter 5: Findings & Discussion

5.1 INTRODUCTION TO FINDINGS

I will discuss the results of my research as follows. I will describe the findings

following the interviews which were part of my primary research. I will proceed to

explain the general findings per question with an overview of the findings and

general response; in addition I follow up that response overview quotes taken

from the interviewees to be used to reinforce the general findings of the

questions. After that I will assess the amount of investment in money market

funds over the past ten years, using a range of sources. I will then discuss the

possible reasons for the trends, and compare them with the reasons suggested

in the literature review. I will proceed to consider the shorter term trends in

investment in money market funds and different money market securities, and

will assess whether the recent liquidity crisis has had any effects in investment in

money market funds.

5.2 KEY FINDINGS ON PRIMARY RESEARCH

Interview Question 1: The changing role of treasury managers

The first question’s objective was to discuss and find out how over the last years

the treasury manager’s role has expanded significantly with much more

involvement in monitoring and executing investments to secure competitive

returns for the organisation. The question was how would you say your position

as cash manager of a FTSE 100 company is characterized now?

- 44 -

Final MBA dissertation (published): "Exploring the top European corporate treasury decisions on short and mid-term investment alternatives" ©

Final MBA dissertation (published): "Exploring the top European corporate treasury decisions on short and mid-term investment alternatives" ©

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