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2013 AFP Liquidity Survey

2013 AFP Liquidty Survey ThumbnailA cautiously optimistic business outlook continues to shape organizations’ cash and short-term investment decisions, according to the 2013 AFP Liquidity Survey, underwritten by RBS Citizens. Forty percent of organizations held greater cash and short-term investment balances during the first quarter of 2013 than in the first quarter of 2012. Fewer than one in four indicate their organizations reduced balances during that same period.

Survey respondents point to productive economic activity from changes in cash holdings: increases are driven primarily by higher operating cash flows (54 percent) while the two leading drivers of decreases are acquiring a company or launching new operations (36 percent) and increasing capital expenditures (32 percent).

Safety of principal continues to be the primary concern for corporate treasurers, with 74 percent of organizations’ short-term balances still held in one of three traditionally ultra-safe investment vehicles: bank deposits, money market funds and U.S. Treasury securities. Despite the expiration of unlimited FDIC insurance (Transaction Account Guarantee, or TAG) at the end of December, bank deposits remain the primary short-term investment vehicle for organizations, accounting for half of short-term investment balances, essentially unchanged from 2012.

 2013 AFP Liquidity Survey Allocations Image

Uncertainty about the future of money market funds (MMFs) is one likely driver of bank deposits, as MMFs are expected to shift to a floating-rate net asset value structure and may include redemption restrictions that could affect investors. Allocation of corporate cash in MMFs already fell to 16 percent, according to the survey. If MMFs shift to a floating net asset value (NAV) or impose redemption holdbacks, as the SEC proposal provides, many financial professionals say their organizations would stop investing in MMFs and reduce or fully liquidate holdings.

Previous AFP Liquidity Surveys:

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