TIMPG Tackles Repatriated Cash, a European Money Market Conundrum and the Yield Curve

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TIMPG Tackles Repatriated Cash, a European Money Market Conundrum and the Yield Curve

The TIMPG spring meeting in New York, hosted and sponsored by BlackRock, gave members the chance to discuss where they stand, post-tax reform, on repatriating (and spending) overseas cash, hear presentations on the markets and investing cash, connect during breaks on topics including setting up CP programs and European money market reform, and hear how one investment manager is making his company’s defined contribution plan more like its defined benefit plan. Here are some of the highlights from the day-and-a-half:
 
Repatriation uncertainty enjoys company. Tax reform and its various implications for cash managers took center stage, as pre-meeting survey results ranked tax reform planning and analysis the top project and priority for members. One manager said, “My world changes dramatically with tax reform,” while another commented, “everything revolves around tax reform.” But when all was said and done, many members left the meeting feeling comforted that not everyone has mapped out precisely how much cash is going to be repatriated, when it’s going to be moved back to the US, what that cash will be used for exactly, or has figured out the accounting details of transferring assets from one country to another. One member said she liked hearing that repatriation for many companies is “a work in progress” while another found it interesting that almost everyone is “still in thinking mode.” Read more about tax reform here. 
 
Negative rates and European money market reform. New rules eliminating constant-value prime money market funds in Europe go into effect in January 2019. As an alternative, many MNCs have been considering the benefits of low-volatility NAV funds (LNAV) that will price to two decimal places if the full mark-to-market price doesn’t deviate from $1 by more than 20 basis points, making the funds similar to constant value NAV funds. But they will resemble variable NAV funds if things go south. And here’s the question one member brought to BlackRock: What will be the effect of negative interest rates be under the new rules? In the past, so-called reverse distribution or share erosion (cutting the number of shares) kept the funds paying dividends. But that may not be allowed under the new rules. BlackRock said the issue is being fought over in Brussels, with a meeting planned for early May. Stay tuned. 
 
Here are two more subjects that provoked interesting observations and discussions:
 
• ESG investing: In response to a member question about using environmental, social and governance (ESG) criteria, another said, “we have sectors that we won’t buy,” and talked about owning the “right things” while avoiding “the wrong things.”  Another said credit managers “should have this sensibility in their models.” Figuring out what’s right and wrong is another matter. One member half-jokingly reminded us that sin taxes on alcohol, tobacco and gaming can raise money that helps society, complicating the process of deciding on an ESG criteria.
 
• Reporting rhythm: Discussing the frequency and detail of reporting to executives, the consensus seemed to be that less is more. As one manager put what he’d learned at the end of the discussion, “sharing too much information is bad for our health.” Another said his department keeps monthly reports to the treasurer “pretty basic…We don’t get into a lot of underlying data. We communicate as little as possible.” A third said reports to the CFO and the board are kept “at a high level” and feature a lot of PowerPoint charts with colors. “They love it,” he said to laughter. 
 
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