What's Neu - News from the The NeuGroup Network of Peer Groups

Blog entry
By mkmoore, October 22, 2018
The Asia Treasury Peer Group (AsiaTPG) meets on October 29 and 30 where members have selected a decidedly tech-focused agenda. Members set the agenda via polls to determine the issues that are most pressing to the group. This meeting is hosted by member GE at their Singapore offices and sponsored by HSBC.
Members will hear from sponsor HSBC on the concept of a digital treasury. HSBC will share its digital transformation journey as well as how its Innovation Lab has worked with clients to explore various initiatives to build a digital treasury.
Members will also tackle technology developments currently transforming today’s treasury for tomorrow’s challenges. Currently bewildered by a host of buzz words, acronyms and phrases, i.e., bots, RPA, AI, data visualization and blockchain, treasury teams are forced to keep pace with a host of technological advances. However, given resource constraints (both time and effort) they must decide what tech to choose and whether it’s worth the effort to advocate a move from what works today to something that may possibly work better tomorrow. The session will focus on real use-cases showcasing new treasury technology as well as treasury tech for broader-use applications. This includes everything from digitalization possibilities for dashboards to transformation efforts that pave the way for growth by driving efficiencies and adding value through automation, straight-through processing, plus bank rationalization.
In addition, the group will examine the regional treasury function of three companies, namely Alibaba, GE and UPS, with the discussion covering team organization, strategy, roles and responsibilities. We will also compare-and-contrast on regional treasury set-ups, comparing how US and European MNCs approach a problem versus how Asia-based firms address a similar problem. The discussion will extend to how Asia-based firms manage the region from a banking and business support perspective. 
The “tech buzz” theme of this peer group meeting will continues with open forum topics like cybersecurity, the fintech landscape, trends and their impact to corporate treasury. 
Blog entry
By amichels, October 18, 2018
The pilot meeting of the Life Sciences Treasury Peer Group sponsored by Wells Fargo  and hosted by Gilead Sciences in Foster City, CA, provided a setting where finance professionals discussed issues specifically affecting the pharma, medical technology and equipment industry, as well as challenges and opportunities faced by all treasurers and their teams.
“Nobody in the World Wants to Pay.” That frank assessment was among comments made during a dinner discussion about the cost of health care and what it means for patients, health care companies, insurers and governments. One member said the expense of developing a drug is often “forgotten,” while another participant said political answers to the problem are “super hard” and made more so by controversies over high-priced drugs. He talked about the value of having payors “with skin in the game,” saying, “the more subsidized something is, the more it costs.” 
New Ways to Pay? One of the most interesting ideas to surface about financing customer drug costs is matching the time a patient has to pay with the duration of the therapy, say, 18 to 24 months. Less clear is whether the patient would pay a financing rate and, if so, whether a third-party like a bank or fintech would hold the risk or the drug company itself would do so. The discussion also touched on so-called outcome-based pricing that’s pegged to a drug’s effectiveness.
“M&A is Not a Democracy.” That statement from a Wells Fargo banker points to the reality that deals are getting done, despite valuations in life sciences that he described as being at “astronomical levels” with “very high multiples—people are struggling to pay them.” He said companies that used to use hurdle rates are “moving to something else” and that pressure to do transactions is driving a more “aggressive financial posture in terms as what qualifies as a good deal.” Often, behind that posture lies a view that by bolting on an acquisition a company positions itself for future synergies and other deals that will accrue to its benefit and growth. 
Insurance Conundrums. A presentation about innovation in insurance coverage addressed the difficulty of many life sciences companies to get affordable product liability coverage and other issues, including the desire of some companies for integrated programs that would better match coverage with risks. A presenter from Aon said the insurance broker would “love to come to each of you with a parametric solution that will be indexed,” but that the industry also needs to come up with other approaches. But in the end, many participants remained skeptical about the outlook and unhappy with the lack of transparency in pricing insurance, with one saying, “it’s so opaque.”
Blog entry
By amichels, October 17, 2018

Members of TIMPG contemplate cash levels, external investment managers and artificial intelligence at recent meeting.

The TIMPG 2018 fall meeting sponsored and hosted by Franklin Templeton Investments in San Mateo, CA, was chock-full of valuable insights on the outlook for interest rates and the economy, portfolio optimization and other topics of interest to investment managers confronting new decisions about cash levels and deployment post tax-reform. Here are a few of the meeting’s key takeaways.

Find your spot on the spectrum. As members look to define the steady state of their cash levels, they must ask anew where they will position themselves on an investment spectrum ranging from conservative—traditional short-duration investments and few external managers—to sophisticated, meaning those with more expansive mandates and more extensive use of external managers. Several members noted that they will be looking to invest more in traditional money-market funds and in-house managed SMAs going forward and most said that they are looking to consolidate their list of external managers.

Define the steady state of your cash balances. A big question for most member companies is what their steady-state cash levels will be once they have allocated their excess cash that is no longer trapped offshore and rejiggered their capital structure. This question will get answered over the next several months for most companies and there is wide variance of opinion, even within some companies: “Our debt guy talking hundreds of millions and I’m thinking billions.” What framework will be used, what level of risk appetite and how much weight will be given to R&D, tangible vs. intangible assets and rating agency concerns?

External managers: How to keep score. Many members will be consolidating managers due to expected lower, steady-state cash levels and all seem to want to scrutinize them more. So there was keen interest in one member’s discussion of external manager scorecards and how they’re used to communicate performance to external managers—and even justify firing them. What goes into such scorecards: “credit, credit, credit,” which emphasizes the importance of using external managers’ credit research capabilities to supplement a firm’s own. Beyond credit, the scorecards note the number of good ideas the manager comes up with vs. your own and how many winning picks in the portfolio are yours vs. theirs, plus how many losers are theirs and how many they insisted on keeping after you questioned holding them.

Prepare for the new asset management ecosystem with machine learning and AI. Roger Bayston, director of investment grade bonds at Franklin Templeton, urged members to look out for the new asset management ecosystem, including a bond market built on tech platforms. One area tech-based ecosystems are showing promise is in the bank loan market, where marketplace lending is taking off. As much as $1 trillion in loans may be originated by marketplace lending (non-banks like Lending Club, Prosper, OnDeck, Marcus ad Enova) by circa 2025, Franklin Templeton predicts.

Click here for more about this and other NeuGroup Peer Groups

Blog entry
By amichels, October 10, 2018
tMega, a peer group of treasurers from the word's largest companies met at host Gilead Sciences to discuss their most pressing topics. Members set their own agenda, so these are they key takeaways that are top of mind for these treasurers as we start to close out 2018.
Rethinking the Share Buyback Framework. The treasurer of a large tech company captivated the group with a description of how the company is approaching its stock buyback plan in the wake of tax reform and repatriating large amounts of cash. Here are some takeaways:
  • Less Prescriptive, More Flexible. The member described the new framework as less prescriptive than the previous approach that had a specific cadence but had given up some flexibility. Now, the company is not announcing when it will execute buybacks. The company’s goal is to “embed flexibility” in timeline parameters, measuring in years, not months or quarters. 
  • No KPI Magic Bullet. In response to a question, the treasurer said, “I don’t think there’s a magic bullet for KPI” when evaluating the success of a share repurchase program. No matter what the size of the program, a “broader framework” is necessary to measure the program.
  • Designing the Framework. The member suggested a three-point framework that included: 1. Achieving stated capital structural goals; 2. Updating the valuation thesis regularly, validating repurchase decisions through retrospective analysis and adjusting for market conditions or changing business conditions or other; and 3. Execution: taking advantage of multiple buyback tools to manage through open markets, and blackouts, while considering volatility, ADTV, VWAP and other factors to measure program success, bank execution and other factors. 
Treasury’s Chance to Shine in Strategic Acquisitions. Another treasurer gave the group a fascinating look at treasury’s role in a large, complicated acquisition of a media company that was bidding for a stake in a third company. He called the M&A activity “a massive undertaking” that’s made 2018 “a dramatic year with lots of twists and turns.” Treasury served as a key partner to the M&A team in preparing the bid and in subsequent negotiation stages. Here are some insights distilled from the presentation:
  • Leverage Questions Give Treasury a Bigger Seat at the M&A Table. The wide spectrum of leverage involved in the various scenarios meant treasury played a much bigger role than in most deals and was heavily involved in the negotiations. Under one scenario, the company’s leverage ratio could have reached over 4x leverage, considerably more than its target of 2. This brought “a lot of credit implications and financing possibilities,” the treasurer explained. 
  • Multiple Scenarios Mean Lots of Work. The huge size of the deal and the subsequent bidding for the stake in the third company meant treasury had to detail the leverage implications of three different scenarios each time it met with the board. All the work done gave the company the confidence to proceed without running scenarios by the rating agencies before bids were structured. “We thought we had a good handle on it,” the treasurer said, noting that the company always talked to the rating agencies shortly before any announcement.
tMega is the NeuGroup for treasurers at mega-cap corporations. NeuGroup has groups for all company sizes, so click here to get more information on the group that is right for you.
Blog entry
By afriberg, October 04, 2018
I’m very excited to have been asked to deliver the keynote on October 24 at the SAP Conference for Treasury Management in Chicago. It is my pleasure to share key takeaways generated from the treasurers who are members of the NeuGroup Network of peer groups. As part of regular benchmarking, members share their top projects and priorities in a survey and then discuss them at their meetings. I’ll share with you what these top priorities are, plus fill you in on why they are important. You’ll also hear what these top treasurers are planning to do about these challenges.
Here are a few of the top issues on their lists so far:
  • Tax reform and its implications for treasury
  • What investors and activists are demanding and how global treasury and shared service centers are beginning to change in response to tax reform
  • How new technologies like robotic process automation and artificial intelligence are deployed
  • Leveraging blockchain technology and what to do about cryptocurrencies.
This keynote will allow me to showcase some of the research and conclusions that NeuGroup has distilled from surveys across more than 450 members.  
I hope to connect with you on October 23-24 at the Westin Chicago North Shore!
To see Anne Friberg at the SAP Conference for Treasury Management in Chicago, click here to register
Blog entry
By amichels, October 03, 2018
The Assistant Treasurers’ Group of Thirty meeting hosted by Amazon and sponsored by UniCredit in Seattle were treated to tours of the "Spheres" before settling down to talk about these key issues. 
Europe vs US rate outlook.  UniCredit’s European economist told members that: 1) the ECB will be lucky to get to zero percent rates before the next recession in 2020; 2) European governments will need to lean on expansionary fiscal policy as a result; and 3) the ECB will need to be prepared to support this fiscal policy with the resumption of debt purchases. Accordingly, liability management for MNCs should factor this in, as well as the small chance that this support mechanism does not succeed in preventing a currency shift, resulting in the breakup of the euro.
IHBs as a platform. Take an open-ended definition of in-house banks to take advantage of most people’s understanding outside the treasury world of what banks do, which will help them understand what a centralized treasury does. There is also an advantage of viewing the IHB as a centralized platform to manage and control a wide variety of treasury and other financial services to the business and even broader stakeholders. These should be the drivers of your IHB definitions and the business case to build them. 
Digitalization of treasury favors human generalists. One member discussed both how structural logic can be a challenge in organizing treasury optimally but also how bots will reduce the time sucks from mundane tasks. Those pursuing RPA at the lower end of the value chain will help everyone by sharing what’s working, but the risk is that there may be some disruptive technologies that sneak in unnoticed at the higher-value end. Data fed into machines will learn to analyze and suggest or perform actions with increasing intelligence, for example, and could start to outperform treasury specialists. Thus, the consensus shared by the group that becoming more of a high-performing generalist sounds smart. For instance, the strategic finance rotations bringing in treasurers without deep treasury experience may become supported by machines with “artificial” treasury intelligence. They should also be smart enough to surround themselves and maintain people in key treasury roles, with good general treasury judgment honed by experience in a variety of treasury and finance disciplines, to provide environmental, social and governance checks on the machines while also ensuring they understand how to support all stakeholders.
Blog entry
By jneu, October 01, 2018

Are you missing something important as treasurers when it comes to Brexit?

At recent peer group meetings, members have been asking each other about Brexit. The gist of the question is: Has anyone discovered something to be concerned about regarding Brexit? From a treasury standpoint, few have heard anything meaningful in response.  

Given that Brexit is scheduled to go down on March 29, 2019, whether the UK has an exit deal with the EU finalized or not, we thought it would be good to get some added expertise in the mix.

Enter BNP Paribas’ UK Economist Paul Hollingsworth, who joined them this summer from Capital Economics, where he also opined on Brexit. Paul will be addressing our Treasurers’ Group of Thirty Large-Cap Edition meeting in New York, via video link, which BNP Paribas is hosting on October 11.

We hope that with Paul’s perspective and his responses to the questions from T30 LC members, we will help shed light on this question and see if there is something that MNC treasurers should be worried about. He may also help members assess if it’s true that Paris is set to become the new center of trading for Europe.

Blog entry
By amichels, October 01, 2018
The FXMPG2 September meeting at the offices of host and sponsor Societe Generale produced a terrific day-and-a-half of in-depth discussions. Here’s a look at a few of the key takeaways that emerged as members connected with each other and with our hosts. 
The Ins and Outs of Algo Trading. One member impressed and enlightened members with a comprehensive update of his company’s use of algos for hedging FX exposure. 
  • Key Takeaway: Bigger Savings with Bigger Trades. The presentation demonstrated that the savings gained by using algos vs a risk-transfer trade on $200 million notional far outpaced savings on a $50 million trade. The presenting company therefore has a $100 million minimum for EUR trades. 
  • Key Takeaway: Algos Take More Work. The difference in savings matters in part because the passive algos favored by the member can take up to 30 minutes to execute a $200 million trade (meaning the user is exposed to market risk) and require monitoring. One member said, “It sounds like a lot of work to me,” and asked if the extra time spent on algos negated the benefits. The presenter said the choice whether to spend 5-10 minutes of your time on an algo versus 1 minute for risk transfer comes down to how much you value the savings. He said $2-$3 million in savings is worth it to him.
Dynamic Hedging: The Case for Options—Literally and Figuratively. Supported by rigorous analysis, presenters from the bank laid out the case for ditching a completely static hedge program and having a hedge toolkit that includes options. 
  • Key Takeaway: Price maker or price taker? Market position, price elasticity and margins matter in risk management. Premium brands like Cartier (to take a French example) have an ability to pass through significant FX moves to consumers and they have the higher margins to unlock budget for options premiums. Lower margin brands operate in a much more competitive landscape; they often prefer the certainty of outcome that comes with a forwards-based strategy. 
  • Key Takeaway: More dynamic, please! Benefits of not being totally static. In a hedge program, the hedge ratio, tenor and instrument choice are the levers that allow flexibility (or not). In their presentation, the presenters noted that they refer mainly to instrument choice when they talk about static vs. dynamic hedging. A static hedge program is consistently applied regardless of market conditions. A dynamic systematic program is a rules-based framework using mainly forwards and collars and where the hedge ratio is determined by market-based triggers like volatility and forward premiums. This kind of program can result in considerable savings in hedge cost (or more risk reduction for the same cost) over time, while still having the guardrails of a well-defined framework. A dynamic opportunistic program allows decision making on a case-by-case basis based on currency, exposure, timing and market levels and can include options and option combinations. 
Blog entry
By thoward, September 28, 2018
Meeting sponsor Bank of the West to discuss banking best practices for fast growing techs.
Fast-growing tech companies present a unique challenge for both treasurers of those firms and the banks that service them. That’s because by their very name, “fast growth,” they are veritable fast-moving targets when it comes to services. And what works today may likely not work tomorrow. 
It’s therefore incumbent upon treasurers to think hard about what banks they partner with so that a year into that relationship, they haven’t outgrown it. So treasurers of fast-growth, middle-market companies have perhaps greater challenges than usual when it comes to banking relationships.
Members of NeuGroup’s Tech20 High Growth peer group will meet to delve into this topic and more at the group’s October 11, 2018 meeting in Santa Clara, CA.
Andreas Bubenzer-Paim, Managing Director & Head of Technology Banking, Bank of the West/BNP Paribas, who will present in several sessions, says treasurers need to have a good banking strategy and choose a partner that can provide comprehensive services.  
“If you’re in a fast-growing sector, you really need to take a minute, step back and think about what you are doing,” says Mr. Bubenzer-Paim. This means they should consider “which markets am I going into? At which rate am I going into these markets, and whatever I decide to do now, am I willing and happy to live with that structure and set up for the next 5-10 years?”
Mr. Bubenzer-Paim gives the example of a company quickly expanding globally into several different markets at once. “You might be entering several countries in a single quarter or maybe even a single month,” he says. “Yes, you want to open accounts quickly, because without the accounts you can't operate in those countries; you need to be able to pay payroll, you need to be able to pay your vendors, and you need to accept customer payment.”
But in the rush to get things up and running in 20 countries, “you really don't want to end up … working with 20 to 30 banks” and their respective onboarding processes and online banking systems. This is the point where those treasurers need to step back and think about their banking strategy. “Shouldn't I pick a bank that has a global platform” that would cover at the very least 80% of the countries the company wants to enter. “As a treasurer, my life is going to be so much easier.”
For its clients, Bank of the West/BNP Paribas, which has been advising technology companies for more than 30 years, offers a local/global approach where a local advisor dedicated to the technology industry helps the company dealing with the complexities of going global, offering access to the bank’s full global services.
At the coming meeting, members of the group will get an update on US tax reform from E&Y and members who have been making adjustments already, as well as a look at post-reform global structures that work. They will also delve into creating a treasury vision and mission statement that aligns with the business, as well as the importance of articulating treasury’s value-add in the context of the corporate vision and mission statement. 
Blog entry
By thoward, September 25, 2018
Treasurers at the world’s largest companies kick off their meeting tonight with dinner and then dive into capital structure and allocation decisions tomorrow at host Gilead Sciences in Foster City, CA.
US tax reform has prompted US multinational corporations to revisit capital allocation and investment decision-making. How are capital allocation decisions made at corporates and how has this been influenced by tax reform and market conditions? Are there any potential unintended consequences of different evaluation frameworks? Members will delve into whether beyond the initial decision-making process, they will have to test their capital allocation decisions to see if they are effective or ineffective after an outlay of funds.
Some of the questions members will look to answer include:
  • How do companies prioritize capital allocation between growth investment, return of capital, and improving balance sheet, and what are the strategic and capital market implications?
  • On what basis are internal and external investment decisions made (e.g., variants of NPV, IRR, ROIC, etc.) and how are appropriate hurdle rates for different jurisdictions set and managed over time? 
  • How should these change with tax reform and market conditions, and how can the choice of evaluation framework and/or hurdle rate impact strategic decision-making?
Members will also get an update on US rules and IRS regulations. They’ll hear expert commentary on the key elements of US tax law changes and related changes in IRS regulation that treasurers need to understand. They hope to clarify what new regs and interpretations have emerged since the group last met in the spring and how they may affect US-based multinational companies reviewing their available cash, capital structures, and general tax planning. They will also seek to know what companies are doing now and what they should be thinking about in the next six to 12 months.