Jeff Glenzer CTP, Vice President and Chief Operating Officer, AFP
The Association for Financial Professionals takes issue with the Sept. 24 Wall Street Journal article that begins with the claim, “Companies reaching for better returns on their cash have found a new favorite investment—other companies’ bonds—and they are loading up.” The article paints a misleading portrait of treasurers and their investment practices, and conflicts with data from the AFP 2015 Liquidity Survey.
The article claims that “More than half of corporate cash held by U.S. companies this August was invested in investment-grade corporate bonds.” The claim could not be further from the truth:
- Research cited in the article measures asset allocation only within separately-managed accounts.
- However, according to the AFP 2015 Liquidity Survey, separately-managed accounts represent only 3 percent of all corporate cash investments.
- Thus, only 1.5 percent of corporate operating cash (50 percent of 3 percent) is held in corporate debt.
- Fully 56 percent of all corporate cash investments are in bank deposits, according to the AFP 2015 Liquidity Survey.
What was portrayed in the Journal article as a common and expanding investment practice for corporate cash is really an outlier. It is true that some of the companies that were mentioned in the article—most with very large cash balances—designated some portion of that cash as strategic reserves and made some investments in corporate debt with a prudent amount of credit and interest rate risk. However, to portray that practice as widespread—invoking references to prior corporate investment debacles in the process—overstates the issue, mischaracterizes the safety-first mindset of the typical corporate treasurer, and invokes images of corporate treasurers rolling the dice in search of yield.
Through its annual liquidity surveys, the Association for Financial Professionals has the most accurate information on how American companies invest their surplus operating cash. The 3 percent of assets, on which the Wall Street Journal article is based, pales in comparison to bank deposits, which alone constitute 56 percent of all corporate cash. Money-market mutual funds and Treasury bills also represent significantly larger portions of corporate cash than corporate debt. We speak with hundreds of treasury and finance professionals every year. They tell us time and again that safety and liquidity are their chief investment objectives. Yield is a tertiary consideration when evaluating investments.
The article is not an accurate account of corporate investments in a typical organization. It sends a message that corporate treasurers are playing fast and loose with their company’s money.
This is simply wrong.