Where to Stash the Cash

Opportunities abound for companies looking to invest their excess cash, but most stick with just three investment vehicles.


With companies carrying an increasingly large amount of cash on their balance sheets, some are looking for a more diverse mix of short-term investments than the traditional troika of money funds, bank deposits, and commercial paper.

In fact, a recent survey by the Association for Financial Professionals found that despite written guidelines that allow most corporate treasurers to invest in seven or eight different vehicles, the majority of firms hold only two or three kinds of short-term investments. "Organizations are not necessarily taking full advantage of the opportunities to generate returns from their cash balances," the AFP warned.

With excess cash, a number of companies are considering transferring some holdings to higher-yield vehicles, such as cash-plus funds or auction-rate securities. "Maybe a different philosophy needs to come into play regarding how companies manage their money if they want to hold it for more than 30 or 60 days," said Sean Locke, director of treasury operations for Aviva Life Insurance. "They might want to start looking for vehicles that offer better returns." According to the AFP, companies that use cash-plus funds generally expect an increased return of more than eight basis points over money markets.

Still, some treasurers say increased diversification of short-term holdings isn't always worth the extra time and effort to manage them. Christy Wright, director of finance and treasury for Ebsco Industries, believes two or three vehicles are "very reasonable" for diversification. "It's more difficult to manage seven different products for short-term cash," she says.

"This is temporary parking for these funds," agrees Ken Parkinson, managing director of Treasury Information Services. "For the most part, you look for an acceptable rate of return and for convenience."

Companies can also diversify cash holdings within money-market funds. Brandon Semilof, a vice president at The Reserve, which manages about $47 billion in cash for hundreds of companies, says it's not important how many different investment categories a company uses. "A firm should worry less about the broad categories into which its cash holdings fall and more about how those holdings are invested within each category," he says.


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