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Case Study: A True Global Notional Cash Pool

  • By Staff Writers
  • Published: 11/24/2015
globalglassThe following case study is excerpted from the new CTC Guide on Global Interconnectivity: Netting, Pooling & In-House Banking.

Marsh & McLennan Companies (MMC) is a global professional services firm of nearly 60,000 colleagues advising clients on strategy, risk and people in over 130 countries. In 2007, having identified the need to centralize treasury management to achieve greater efficiency in managing cash, MMC corporate treasury implemented a global multicurrency notional cash pool.

This structure provides multifaceted benefits. The notional element allows the pool participants to retain cash in their bank accounts under their control. The absence of physical pooling at cross-border level means there is no need for intercompany loans and, therefore, none of the associated documentation and reporting challenges they involve. It also imposes no foreign exchange transaction requirements.

The structure also supports MMC’s acquisitive strategy. The flexibility of the global pool makes it very easy for new entities to join: essentially all they need to do is open a new bank account to participate. It supports corporate strategy in other ways too. It allows Ferdinand Jahnel, CTP, vice president, treasurer, MMC, to eliminate local borrowing and work towards the ultimate goal of reducing external borrowing at the corporate level.

“Over the years, I have managed both physical and notional cash pools,” said Jahnel, a member of AFP’s Board of Directors. “When you are considering cross-border and cross-currency structures, physical pools cannot offer the same benefits as notional pools. Physical pools do play an important role in our in-country structures, however. As an example, MMC uses a physical pool in the U.S., where we physically pool cash at the end of each day into a master account.”

MMC has two global treasury centers, one in New York and one in London. While there is a clear reporting line from London to Jahnel in New York, the London office assumes most of the responsibility for managing the global cash pool, primarily for time zone reasons. The New York office takes over management of the pool for the last few hours of the day. It is the combined responsibility of both treasury centers to ensure the notional pool is funded at all times.

In a matrix organization like MMC, managing cash on a global basis is highly challenging. Much is achieved through automation. In addition, MMC has local controllers in each country who are responsible for all local cash management: collections, disbursements and payroll. Each controller follows clear policies and procedures governing the use of cash. They are all keenly aware of moving cash into the global pool by the required cut-off time. In addition, Jahnel and his colleagues have to keep a close eye on the ever-changing regulatory and tax environments in each of the countries MMC operates in.

MMC policy is for all entities to participate in the global cash pool, as long as local regulation permits them to do so. There are countries not currently participating in the global cash pool, notably China as well as some Latin American countries. In these locations, cash is managed by the local controller, following the same policies and procedures. Within MMC, the U.S. entities are net borrowers, primarily because most corporate spending (dividends, share buybacks and acquisitions, for example) is funded from the U.S. The general international pool has excess cash, which is invested by the London office according to a tight investment policy.

Ultimately, this structure is designed to achieve maximum efficiency in the management of global cash. It supports MMC’s growth strategy while delivering transparency and control over group cash.

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