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Excess Liquidity: The Challenges of Too Much Short-Term Cash

  • By Staff Writers
  • Published: 1/4/2016
shen1In an interview at the 2015 AFP Annual Conference, AFP spoke with Peter Shen, CFA, assistant treasurer for medical therapeutic provider Gilead Sciences, whose company has grown significantly in recent years.

AFP: So your company is growing rapidly and there’s plenty of short-term cash. What’s so challenging about that?

Shen:
It’s definitely a dream scenario for a treasury professional to have that amount of cash. With the growing amount of cash balances, there are definitely some challenges. We try to make sure to have the proper investment infrastructure in place and also make sure that we have the proper controls.

In terms of infrastructure, we think of our system: Do we have the right systems so it can match the cash in a scalable fashion? Do we have the right process so that we don’t have to add additional headcount? In terms of risk management, we want to make sure we have a sound investment policy to invest properly with our risk tolerance and controls to make sure that when we think about compliance and also our credit risk we take the right approaches.

AFP: What’s the biggest treasury risk when your company is growing rapidly?

Shen:
The biggest risk is in terms of liquidity needs. We truly need to understand how the business is changing so that when the business needs to—when we need to fund the business, what are the different entity levels, or business units—we’ll have the right liquidity to support our growth.

AFP: Lastly, your background is in mechanical engineering. So how did you get into finance? Which skills translate and which skills don’t?

Shen: So during college, I got interested in finance by following the markets. I was fortunate to start my career on Wall Street in investment banking. And in terms of the kinds of skills that translate well from engineering to finance, I think there are a lot of similarities in terms of analytical skills and truly understanding the process. In terms of skills that don’t translate, I’m pretty sure the basic engineering skills in terms of chip design or coding—I probably won’t do that again in the finance field.

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