How Are CFOs Taking Advantage of Today’s Yield Opportunities?

Written by Kalei White
April 24, 2023

In the ever-evolving world of corporate cash management, staying ahead of industry trends, market changes, and technological advancements is crucial for maintaining optimal liquidity and minimizing risk. 

In a recent episode of Fintech Corner, Trovata CPO, Joseph Drambarean, and CEO, Brett Turner, were joined by Paul Przybylski, Morgan Money Managing Director of JP Morgan Asset Management Liquidity Business, where they discussed investing for corporates, interest rates, cash management, and more.

Paul is an expert on corporate investing trends, having incubated Morgan Money as a startup within JP Morgan, a global trading platform that enterprises use to invest with ease, operational efficiency and effective controls. Today, Morgan Money has over $210 billion in assets under management (AUM).

In this article, we’ll share some of the episode highlights regarding:

  • How companies are taking advantage of today’s interest rates
  • Important tech innovations across the investment spectrum
  • Paul’s advice to first-timers for investing and investment policies

Note – Trovata is not a financial services firm, nor do we offer any investment advice or recommendations.

Watch the full episode here:

Taking Advantage of Today’s Yield Opportunities 

With interest rates experiencing significant fluctuations due to factors such as the pandemic and Federal Reserve policies, money market fund yields have risen substantially. 

As of March 2023, the S&P return was just under 3%, which cash was out-yielding by roughly one and a half percent. However, it is uncertain how long this will hold for. 

Investors are now rethinking their liquidity management strategy since cash has become an attractive asset class once again. 

What this means for corporate finance professionals is that, when you were perhaps able to be a more conservative operator prior to today’s rate environment, now there is much more pressure to put idle cash to use. 

“Now, boards are hammering CFOs and treasurers. If you’re not stewarding that cash into some yield opportunities, then you’re going to have to answer some harder questions.”

– Brett Turner, Trovata Founder and CEO

Since the Fed began to hike rates at a historic speed and velocity, money market fund yield has lifted substantially. Paul Przybylski commented on the opportunity:

“Now you’re essentially getting 4.5 to 4.75% on the money market fund product. That is significantly higher than you have seen in a number of years. So our clients and investors are now starting to really rethink their liquidity management strategy as cash is an asset class that’s essentially in play.”

– Paul Przybylski, Morgan Money Managing Director

In the US market today, the money market fund industry is worth about $4.5 trillion. Pre-COVID, it was worth about a trillion less. So, Paul mentions, “You can see how much money has moved into this space and a sizable percentage of that is traded electronically via platforms like Morgan Money or via different other platforms.”

Rebalancing Portfolios Amid Rate Hikes

As rates change, savvy investors must be prepared to rebalance their portfolios accordingly. This may involve reallocating funds between different investment vehicles, such as high-yield bonds and low-risk treasury bills, in order to maintain a balanced risk-reward ratio. 

By closely monitoring market trends and staying informed about potential rate changes, you can make timely adjustments that will optimize your company’s financial performance.

Preparing for Potential Future Changes in Interest Rates

No one can predict with certainty how interest rates will change in the future; however, there are some strategies that can help you prepare for any eventuality:

  • Analyze historical data: Studying past trends in interest rates can provide valuable insights into how they might evolve over time.
  • Diversify investments: Spreading your assets across various investment types helps reduce vulnerability to sudden shifts in the economic landscape.
  • Maintain a contingency plan: Having a well-thought-out plan of action in place will allow you to respond quickly and effectively to any unexpected changes in interest rates.

Considering your cash flow and financial objectives is essential when looking into investments due to the possibility of future modifications in interest rates. 

By weighing the pros and cons, corporate investors can take action that will optimize their ROI whilst reducing any potential risks from fluctuating markets.

How Is Tech Being Utilized in the Investment World?

Today, technology is used in investment management to access data and insights quickly, allowing for more informed decisions. It allows finance professionals to access real-time data and insights, enabling them to make better decisions faster. 

Automated portfolio analysis tools can help identify opportunities and risks quickly, while cloud computing technology provides secure storage of financial data with easy remote access. 

According to Paul, “Tech in the investment universe and the world of managing money is very much alive and well.” He explains,

“We use a lot of proprietary technology to size and rebalance portfolios, which historically was done by individual portfolio managers and spreadsheets. Where now it’s basically push of a button type of an approach that allows you to use the time for thought process and portfolio positioning versus doing the manual work of manually sourcing the data out of Bloomberg and then effectively reallocating.”

– Paul Przybylski, Morgan Money Managing Director

For corporate treasurers, technology plays a huge role, he adds, “You’re coming to start your day having up a cup of coffee, you fire up Morgan Money and you look at where your money’s sitting and where your yields are at, you can very easily rebalance your portfolio in a handful of minutes and then walk away.”

Trovata and Morgan Money

Gone are the days when investing your company’s idle funds meant navigating through complex spreadsheets or dealing with multiple banking platforms. 

The collaboration between Trovata and Morgan Money simplifies this process. If you have both a Trovata and Morgan Money account, you can now access Morgan Money via Trovata, the first third-party app hosted on our platform.

“Treasurers have far more other things to do more value added tasks. And the whole idea [of the Morgan Money Trovata partnership)] is to give them that flexibility essentially with the tech.”

– Paul Przybylski, Morgan Money Managing Director

With just a few clicks, you can view real-time account balances across various banks, access money market funds (MMFs), make informed decisions on investments, and manage liquidity more effectively.

  • Ease of use: Enjoy user-friendly interfaces designed to streamline your investment workflow.
  • Data-driven insights: Access comprehensive data analytics to help you make smarter financial decisions based on historical trends and future projections.
  • A single source of truth: Consolidate information from multiple bank accounts into one centralized dashboard for better visibility into your organization’s overall financial health.

Advice for New Corporate Investors

If you’re new to the process, there are some things you can do to ease yourself into corporate investing. 

Understand Your Cash Flow and Goals

The first step in making sound investment decisions is assessing your organization’s cash flow and establishing clear financial goals. This process involves analyzing income sources, expenses, and current liquidity levels to determine how much idle cash is available for potential investments (this is where Trovata comes in).

Having collected the data, it is then simpler to set practical objectives that fit both short-term needs and long-term ambitions.

“Start slow and understand what are your financial goals as a firm and understand what investments need to be married to that understand your cash flow. I think understanding your cash flow is hugely important in structuring your investment policy. And also at the same time, you have to remember what that cash is used for.”

– Paul Przybylski, Morgan Money Managing Director

Start With a Simple Investment Policy Statement (IPS)

When it comes to writing your IPS, Paul shared, “It starts with the person doing it understanding what the actual needs of the firm are and at what stage of maturity they are to really write a meaningful starting point. And I can tell you that over time, as that company grows, that investment policy will change because they will grow with appetite, and that will require revisions to that statement.” 

Since you may be very risk averse, look into government funds, treasury funds, and credit funds, instead of investing in more risky areas like emerging markets.

Balance Risk With Reward

Next, think about how to balance risk versus reward. Achieving the desired balance between risk and reward can be accomplished by diversifying across different asset classes with varying levels of returns associated with their respective risks. 

For instance, you can diversify with:

  • Stocks: These can provide higher returns but come with increased volatility compared to other asset classes like bonds or money market funds
  • Bonds: Typically considered safer than stocks due to their lower volatility; however, they also tend to offer lower yields
  • Money Market Funds: These are considered low-risk investments that provide stable returns, making them an ideal choice for preserving capital while still earning modest interest 

Right now, Paul sees a lot of companies investing in Money Market Funds and offers some insight as to why:

“Money market fund products are the most highly regulated securities in the world effectively. There’s a significant amount of regulatory scrutiny. These products are very much in a preservation of capital first. Effectively, yield is a secondary aspect, but in the rates environment that we’re at in the government money market fund triple A rated, you’re essentially betting on the default that the US defaults, which if that happens, there’s obviously very different circumstances would be happening in the world.”

– Paul Przybylski, Morgan Money Managing Director

In addition to diversification, it’s essential to regularly review and adjust your investment strategy based on market conditions or changes in company objectives. This proactive approach ensures that you’re always optimizing risk versus reward ratios and maximizing the potential of your cash reserves.

Turn Insight Into Action 

As corporate cash management continues to evolve, so must the tools and strategies that CFOs, treasurers, and finance professionals use. By leveraging artificial intelligence-driven solutions like Trovata in combination with Morgan Money’s tailored approach to navigating interest rate changes, businesses can ensure their financial decisions are informed by accurate data that is constantly being updated.

With this level of insight into your finances at hand, you can increase the chance of making sound investments while also preparing for any potential shifts in the market.

“Our value-add, ultimately, is how we allow you to turn insight into action that’s effectively painless, seamless, and super easy to do. Since everything is connected, after you execute a trade in Morgan Money, information flows instantly back into Trovata and you’re moving onto the next steps. You’re living in that automated cycle that allows you to not overly complicate your day, but at the same time maximize your value and benefit.” 

– Paul Przybylski, Morgan Money Managing Director

Ultimately, even if you have great insight, but your execution is poor, your outcome will only be as good as your execution.

Now, the million dollar question: Are high interest rates here to stay? Listen to the episode to hear what they think!

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