How to adapt business models to today’s low interest rates – this is a challenge we all face. But for corporate treasurers it is a full-on, 24/7 battle.
Achieving that goal is about more than rates and yields. It is just as important to ensure that returns don’t leak away in execution, position management and other costs.
At Calastone, we recognised the issues corporate treasurers face. Deploying our network and technology strengths, we are now helping them make every basis point count.
A $6 trillion marketplace
For many of the world’s larger corporates, the challenge gets bigger every year because cash holdings continue to grow. Take the latest figures from the Association for Financial Professionals: more than half of US businesses increased their holdings of cash in 2019.
Where do they put it? Money market funds (MMFs) – also known as liquidity funds – are the vehicle of choice for many, providing a diversified, secure and liquid investment medium. MMFs currently account for more than $6 trillion of investors’ money.
Patchy automation brings friction and cost
From a corporate treasurer’s perspective, however, investing in these funds is not always plain sailing. While execution of a trade may be automated – through an MMF portal that may or may not be owned by one of the fund providers – the rest of the post-trade process has often had a stone age feel to it.
Reporting back is often slow. There may be uncertainty over the status of the trade. There is a lack of integration between fund portals and the treasury management systems that treasurers use to manage their positions. Investors that use multiple funds can find data coming through in different formats. Someone needs to sit at a keyboard and re-work it.
All this is in contrast to the equities markets which adopted end-to-end digital processes many years ago. The inefficiencies create friction, and friction creates cost – which chips away at already low returns.
Digitising the end-to-end process
At Calastone, we see it as our mission to eliminate friction and reduce costs for investors. Our Money Market Services offering for MMFs and portals now does just that for their corporate treasurer clients.
It automates and digitises the end-to-process, linking MMFs, the fund portals and the investors’ treasury management systems. It brings standardised, real-time reporting through the trade lifecycle – when a trade has been received, priced and settled – and it drives out the need for manual intervention at the investor’s end.
It also satisfies the demand for more data. It provides access to a host of additional information treasurers and their compliance teams have long wanted but which has not been available through the traditional channels. The result is more transparency, better protocols, lower risk.
That can be empowering, particularly in the event of a big external shock that jolts markets. The real-time nature of the data – made possible through our use of distributed ledger technology (blockchain) – means the investor can make decisions based on the precise status of all their holdings.
Positive for fund promoters, too
It is not just investors who benefit. Greater efficiency in their reporting helps the fund promoters stand out in a competitive marketplace and deliver a better, more streamlined service.
It also allows them to automate much of the investor onboarding process. Making it quick and easy for investors to get their balances invested is a clear plus point.
A natural extension of our role
All of this has involved a lot of investment. There are more than 40 different treasury management systems in use and we have built linkages to all of them. We keep up with systems updates and we track new entrants.
But we see it as a natural extension of Calastone’s role as the world’s largest funds network. The liquidity funds market is just one more area where value has been leaching away through a failure to automate and digitise. We are bringing the connectivity to change that.