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

Blog entry
By jneu, November 15, 2013

Tech20 treasurers discussed how best to fund on-going shareholder distributions and keep their investors happy.

With the prospects of a US tax reform to fix the offshore cash conundrum remote, Tech 20 members marked their 13th Annual Meeting (sponsored by BNP Paribas) last week by instead focusing on various ways to maintain their current path of issuing debt to fund dividends and share repurchases. Fortunately, debt capital markets look to be receptive to tech issuers and this is likely to be the case for some time. With US interest rates expected to continue to stay low—thanks to tempered expectations about overall post-crisis GDP growth and employment rates, plus forward guidance—borrowing is likely to beat the cost of repatriation for some time, too. Investor sentiment, and even rating agency sentiment, meanwhile, appears to be on Tech20 treasurers’ side. And, finally, member firms who have a growth story that needs to be revamped, may find receptive private equity investors like Silver Lake, if they have the right rewrite plan. In addition to these main themes, here are some further highlights:

Key takeaways

  • So long as tech issuers avoid taper panic periods, the market reception will be very good. Members shared insights on issues pre-taper panic and another noted how his turn to the euro market in July, to move away from it, met with strong demand. BNP Paribas’ Tim McCann, head of US syndicate, and Mark Howard, head of US credit strategy, suggested further that tech has maintained its distinctiveness from telecom issuers that have saturated the bond markets (see Verizon, most recently), and therefore tech issuers are likely to continue to enjoy better relative spreads and demand. Other members indicated there is good opportunity in the convert space, too.
  • Ratings seem to be accommodating the new normal of tech bond issuance and dividends. Moody’s Rick Lane participated in a session that suggested there is acknowledgement on the part of rating agencies of what the off-shore cash situation means in the current state of the sector. Moody’s still seems comfortable with tech’s relative cash levels, even given the growing off-shore portions along with increasing use of dividends to return cash.
  • Investors looking at the long view. A panel of investors including representatives from BlackRock and Western Asset, on the fixed income side, and Dodge & Cox on the equity side, encouraged members to do what is right with their cash over a longer-term horizon. Members were encouraged not to give in too much to activists in the near term, but also not to hoard cash for the sake of it.

We thank the Tech20 members and our guests for their active participation and BNP Paribas for their support of the Tech20 and its Annual Meeting for the sixth year running.  

The Tech20 Treasurers’ Peer Group was formed in 2001 and remains the premier forum for treasurers in the tech sector.  It was the first of its kind in the treasury space and helped launch a network of now 16 practitioner-focused membership peer groups for senior treasury and finance professionals facilitated by The NeuGroup.

Blog entry
By mkmoore, November 12, 2013

The NeuGroup’s Internal Auditors’ Peer Group's recent fall meeting covered a wide range of Audit Committee challenges, ranging from the ever present goal of doing more with less to the finer points of what the AC really needs to know. There was also some insight into technology tools and cyber security from our host, Visa, as well as an address from Byron Pollitt, their CFO.

Here are some key meeting highlights:

ACs are paranoid by nature. Pollitt pointed out that the AC was “a paranoid group” and always worried about what could embarrass them. However, “red audits are inevitable,” he said. “And if one doesn’t come up [in an audit report], then audit isn’t probing enough. There should be no blindsides.”

Audit budgets/cost cutting a theme. Budgets and budget cuts were on the minds of more than a few members.  Many agreed with the suggestion that a CAE say IA is “doing what it can with the budget provided,” while one member cautioned the group not to “overplay what can and cannot” be covered. A “champion” in management can help keep the audit budget intact, as can putting a dollar value on audits.

Just stay off the internet! Our speaker separated cyber threats into three levels: there’s the A-Team, which is a group of highly organized, extremely patient criminal enterprises, mostly in Eastern Europe; the B-Team, consisting of lower level offenders who either make private information available or use for criminal purposes what someone else has made available; and then lower teams who “could be anybody—a kid off the street” who can buy magnetic strip reader software off the internet.

Data Analytics: Everyone should have a hand in analytics.  When investing in analytical infrastructure, there needs to be a person who can run it, and the more of these people who can be trained in the business units, the more useful the system is. For this reason, a SQL-based system is useful because more people have basic knowledge of it, and it is more likely to be Googleable when human help is not available.

International Audits: Designate a country manager. Where it’s not possible to hire a country compliance officer, the head of sales or whoever is available in-country can fill this role, but this person needs to understand the scope of the position. This will make country audits both smoother and less likely to find many surprising red flags.

Thanks to all of the participants and of course special thanks to Visa for hosting us and providing some excellent in-house expertise.

Internal Auditors’ Peer Group is a membership-only peer group for senior corporate internal audit professionals with oversight responsibilities and direct line of reporting to the board-level audit committee. Members meet to discuss topics on their agenda, share experiences and discuss solutions to common challenges. The IAPG is one of 15+ NeuGroups representing more than 300 members at 180+ companies.

Blog entry
By mkmoore, November 11, 2013

In a world of persistent zero-bound rates, cash investors need to look both beyond the now and into underlying risk factors.

At last week’s meeting of the Treasury Investment Managers’ Peer Group (TIMPG), PIMCO, the meeting sponsor, contributed to several topics on the members’ agenda, including the rate outlook and, given the likelihood of continued zero-bound rates, how to invest cash for additional return without exceeding risk tolerances. Here are some key takeaways:

  • Zero-bound rate world will continue. “Bond managers must adapt to a new world of near zero bound interest rates and the likelihood of lower total returns” stated Bill Gross as he kicked off the TIMPG meeting. His outlook is for the FED to be on hold for the foreseeable future and into 2016. To support this outlook he mentioned FED nominee Janet Yellen’s stance as a “super dove” determined to maintain low rates. Also adding to this backdrop is the uncertainty as it relates to the US Government, “uncertainty can’t be a good thing for corporations. Investment is flatlining.” Bill noted that an economy cannot grow if corporations are not investing.
  • “Carry” out of the present. With zero-bound rates and upside uncertainty in the immediate future, reducing maturity in the investment portfolio is a strategy that he felt could be counterproductive. Instead Bill recommended investors focus on “carry”, which he describes as maturity extension, credit spreads, volatility and currency differences, to help protect downside risks.
  • Dump traditional asset allocation methodologies for risk factor allocation. Members were challenged to look at asset allocation in a new way and substitute risk factors as the primary building blocks for portfolio optimization rather than asset classes. PIMCO’s Sebastian Page presented the benefits of using risk factors instead of asset classes to guide investment allocations. Essentially, risk factor-based allocation means looking at the underlying risk profile of the investment security in terms of credit or interest-rate risk, for example, and diversifying based on such risk criteria versus  by type of security. PIMCO’s model searches for uncorrelated risk factors and builds a portfolio based on this information. Using this approach, PIMCO showed how its risk factor model will allow investors to de-risk their cash portfolios without sacrificing yield.

Thanks to PIMCO for both sponsoring and hosting our TIMPG members for their fall meeting and to our members for engaging in the very active discussions in last week’s sessions.

The Treasury Investment Managers’ Peer Group (TIMPG) is a membership group for practitioners with principal responsibility for managing the investment of excess cash at corporates with sizeable cash portfolios. Members meet to discuss topics on their agenda, share experiences and discuss solutions to common challenges. The TIMPG is one of 15+ NeuGroups representing more than 300 members at 180+ companies.

Blog entry
By mkmoore, November 06, 2013

Meeting sponsor Standard Chartered Bank fosters lively discussion on cash and liquidity management in China.

The Asia Treasurers’ Peer Group – Singapore had their fifth meeting last week which was hosted by Caterpillar and sponsored by Standard Chartered Bank (SCB). This was SCB’s first sponsorship participation in Asia, after several years of supporting The NeuGroup Network of peer groups in the US. The group was pleased to welcome guests from Emerson Electric and UPS. The following are a few highlights from last week’s meeting:

China Cash and Liquidity Management. China remains a key focus for this group, and the Chinese Reminbi (RMB) internationalization is an evolutionary journey which many watch and partake in. RMB is growing significantly as a settlement currency, and full-convertibility is expected in the not-too-distant future. SCB kindly arranged for a representative from the Monetary Authority of Singapore (MAS) to speak to the group about plans to support the infrastructure for RMB financial products and services to be available in Singapore earlier rather than later. This gave insight and sparked active discussion on various topics like the pace of RMB internationalization, review of new regulations, the Shanghai Free Trade Zone, and RMB cross-border lending to name a few. Member company, Ford, presented their case-study on RMB cross-border lending, and how they worked with regulators at the People's Bank of China (PBOC) to be able to participate. Ford did not meet the financial criteria set by the PBOC, and was initially denied participation. However, the company figured out an approach to participation that would be of benefit to the regulator’s objectives, thus creating a “win – win” situation that accomplished further steps toward the internationalization of the Chinese Reminbi.    

Asia Treasury Organizations and the Challenges in Talent Attraction and Talent Retention. Is a treasury role truly a specialist job or just another finance area rotation job – which definition best suits your company organization and team member’s aspirations? This was the essence of the discussion among members in which they shared their challenges to scope out the treasury roles within Asia to best suit the objectives of their organizations and the employee aspirations of their team members. Members shared that often there is a need to pay “premium” for treasury specialists, especially in “hot” labor markets like China and India where turnover among finance professionals hovers above 20%. Yet this poses challenges when such resources are rotated to other Finance teams. In small outpost locations, job rotation and job advancement are challenging to achieve, so perhaps “clustering” of treasury operations and treasury activities can provide some relief. There was dialog on the wide variety of treasury organizations in Asia, example in size, scope of work (global functional vs. regional business support), reporting lines, and geographical responsibility. Clearly there are many stakeholders to please, and no case of “one size fits all”, which adds to the talent recruitment challenge as well.

Sharing Notes on Bank Experiences. Though product offering and geographical network are both core to providing adequate banking service, there was an acknowledgement that advisory is key to providing client value-add, and time and effort invested in this area gains strong scores in client engagement. However, members agreed that the market is not willing to pay for such advisory on working capital management, in contrast to investment banking advisory services which are well accepted to command high banking fees. Thus, advisory on working capital management, traditional commercial banking and financial market regulations and insights will have to remain as ancillary to the broader relationship. Other relationship banking cornerstones discussed included (a) unwavering credit support and (b) documentation with ease. Members are also keen to watch the banking industry evolve and transform as Asian players take on global aspirations with lofty expansion and investment plans.     

There was also a member profile presented by our host, an insightful dialogue on cash-flow forecasting and varied practices in this area among member companies. SCB gave their views and led a discussion on the future vision of Asia-Pacific banking needs and how banks are strategizing to meet customer demands. We thank all of the members and representatives from SCB for their contributions to the discussion and overall success of the meeting.

The Asia Treasurers' Peer Group - Singapore was founded in October 2011 for regional treasurers of large MNC’s with treasury operations in Asia. As the first NeuGroup in Asia, we expect it to be the catalyst for other Asia-based NeuGroups to serve our members in the region.

Blog entry
By mkmoore, October 30, 2013

We would like to thank BNP Paribas for hosting and sponsoring the Treasurers’ Group of Thirty 2 meeting in October. Their presentation on "The Chicken and Egg Economy" brought a new context to ongoing discussions of sluggish economic growth and the structural adjustments that are necessary for long-term health of the global economy.

Highlights of their panel include:

  • Global Market Vulnerability. Just the talk of the Fed tapering off its bond buying program was enough to have a dampening effect on global equity growth rates in most major emerging markets.
  • Eurozone fiscal austerity continues. Growth across Europe has surprised many, and it is likely that fiscal austerity will continue, albeit at a slower pace. The is growing optimism here.
  • The degree of US corporate caution is at historic levels.  The ongoing battles in Washington promise to bring prolonged anxiety to the markets as the speed and form of fiscal tightening continues to be a highly contested issue.

Thank you to all of the T30-2 members who participated in the discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange

The NeuGroup’s Treasurers’ Group of Thirty 2 (T30-2) brings together 30+ strategically-minded treasurers at large MNCs across a wide variety of industries to share experiences and best practices with their peers. The T30-2 is part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

Blog entry
By mkmoore, October 22, 2013

Bank of America Merrill Lynch has released its 18th annual corporate risk management survey, with insights from over 200 firms across the globe. The survey focuses on interest rate and foreign exchange, while also touching on derivative accounting and execution. John Shin, the BAML FX strategist who runs the survey, was recently a guest speaker at The NeuGroup Network’s Engineering and Construction Treasurers’ Peer Group meeting, where he presented insights into the US economy.

Here are some of the survey highlights:

A conservative, status quo approach to risk management

Almost two-thirds of the respondents agree that their primary interest rate risk management objective is to reduce economic risk; with optimization of cash flows and stabilization of earnings also popular objectives.

The survey showed that overall fixed debt levels have not changed much over the past year. LIBOR continues to be used overwhelming for a floating rate index (88%) and hedges from 1-6 months are the most popular duration, dwindling off rapidly past 12 months.

Corporates remain conservative, using hedges to reduce risk and not for internal positioning as evidenced by the 2/3 of respondents that do not terminate hedged positions early for mark-to-market purposes. One-third use pre-issuance hedges; a combo of treasury and swap locks or used individually being the most common and options less frequently used.

Minimizing balance sheet exposure is by far the most common objective of FX risk management.

77% of respondents had no change in instrument use, and there was a very slight pickup in FX hedging in general with slightly longer tenors for some respondents. The survey reports option hedging is used more often for contingent exposures due to M&A activity and bids, and currency swaps more often for net investment hedges.

Exposure uncertainty is driving corporate treasury to be shy on full coverage.

Of those respondents who do hedge balance sheets, the majority report less than 100% exposure hedging due to “exposure uncertainty." Further breaking down the results, for FX exposures survey respondents noted the uncertainty of forecasted exposures limit coverage. This is a common complaint among treasury groups. FX forecast variability (64%) and concern over forecast error, as evidenced in the survey, is the primary driver for final hedge coverage being below the 100% mark.
FX forwards remain the instrument of choice (74%)

No surprise here with FX options a scant second choice. Most frequent FX hedge tenor reported was less than three months (62%).

An overwhelming majority (90% range) reported no effect on hedging types and methods because of Dodd-Frank, while a smaller majority plans on filing for an end-user exemption on clearing/margining.

The NeuGroup Network’s Engineering & Construction Treasurers’ Peer Group (E&CTPG) bring together treasurers from the largest multinational companies in the engineering and construction industry to share experiences and best practices with their peers. E&CTPG is one of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

Blog entry
By mkmoore, October 16, 2013

Thank you to Bank of America Merrill Lynch for sponsoring and hosting the fall meeting of the Engineering & Construction Treasurers Peer Group in Chicago.

The member-driven agenda included topics such as security, US regulatory impact on capital markets and bank business models, public and private bond placements, acquisition integration, treasury strategy planning, the use and growth of card programs. Here are a few highlights from the very active discussions:

“Common Sense is the Best Protection against Fraud” says BAML’s Milton Santiago who gave an eye-opening presentation on security in ecommerce and banking. The weakest link in fraud protection is typically companies with inadequate controls and not the banks. Having robust controls to prevent fraud can also stop most phishing, smishing and other hacker attacks. While members remain timid on adopting mobile means for treasury transactions, Milton interestingly noted that annually, $8.1 trillion in B2B transactions are being settled with mobile applications today.

Rating Agencies & Road Shows – A member-led session described their forays into the public bond market, including the process and the many lessons learned. One particular point was emphasized - “do not assume that rating agencies are easy to deal with.” Both S&P and Moody’s were engaged to review and rate the inaugural bond issuance which raised acquisition capital. In comparison, another member used a Canadian rating agency (DBRS) familiar and friendly with the E&C industry to obtain a favorable private rating for a bond placement to support their acquisition. Both members did road shows to attract investors.

2018 is Fast Approaching – Forget the long lead time (2018) on the proposed US regs for bank capital requirements. According to BAML’s Bill MacDonald, banks are already calculating the impact today. And the affect on available capital and banks business models, if passed as is, is “very significant”. Bill gave a rather dismal view of the impact of proposed liquidity and leverage ratio requirements on GSIB (globally systematic important banks), and he noted that he has already seen nine large industrial deals in the last 90 days that banks have walked away from. Given this pressure, key relationships and share of the wallet will be of primary importance.

The NeuGroup Network’s Engineering & Construction Treasurers’ Peer Group (E&CTPG) bring together treasurers from the largest multinational companies in the engineering and construction industry to share experiences and best practices with their peers. E&CTPG is one of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

Blog entry
By afriberg, October 15, 2013

Members of the NeuGroup’s European Treasurers’ Peer Group (EUROTPG) set the agenda last week for its upcoming autumn meeting which will be held at sponsor Bank Mendes Gans’ offices in Amsterdam. BMG, jointly with member company United Parcel Service (UPS), will share the case study of the UPS cross-border pooling set-up and meeting participants will have a chance to drill into the details to thoroughly understand the ins and outs of this liquidity management tool and the way BMG delivers it.

REGS, REGS, REGS: An area of keen interest and timeliness is the status and progress of members’ compliance with SEPA; ditto for derivatives regs in Europe (EMIR) and the US (Dodd-Frank). On the latter topic, they are particularly concerned with reporting and reconciliation mandates, and the interplay of the European and US rules.

FIRST-CLASS TREASURY TO INTEGRATE WITH ANOTHER: Whether on the giving or receiving end of M&A activity, treasury plays an important role in the integration of two entities, particularly if they are both of significant global heft. A member from one such company will share various tips and lessons learned for smoother integrations of the treasury “machinery.”

The meeting will also have time allocated for members to share their current priority projects and an open forum for timely topics that did not get full sessions dedicated to them. The meeting will run for a full day on November 21 (with a group dinner the night before). BMG’s representatives will be present in the morning while the afternoon is reserved for members-only peer-to-peer exchange.

JOIN THE GROUP: For information about joining the EUROTPG, please contact afriberg@neugroup.com. Participants in this week’s EuroFinance in Barcelona are encouraged to get in touch to arrange a face-to-face meeting. I will also be tweeting from the Barcelona event: @AFribergNeuGrp

Blog entry
By mkmoore, September 30, 2013

The NeuGroup would like to thank Standard Chartered for sponsoring the recent 2013 Global Cash and Banking Group meeting, hosted by Oracle in Reno. Their session provided members with the latest updates on the evolution of the Renminbi and the opportunities that exist as this market continues its rapid expansion. In addition, they provided members with insight into the latest liquidity management capabilities across Asia as emerging liquidity structures like USD cash concentration, Regional Multicurrency Notional Pooling and RMB linked structures continue to develop.

Highlights of their remarks include:

  • As companies grow in Asia, it’s sensible to keep some money there. Standard Chartered suggested that members consider pulling excess cash into the global pool in London, New York or the Netherlands, and park non-excess cash in lightly-regulated markets such as Hong Kong or Singapore. This way instead of over-funding local operations, you can just-in-time fund without having to bring money East against the sun.
  • Since regulatory approval is no longer required to move RMB off shore, it can be pooled and moved from a pool header through one RMB special account, which has the same general opening process as a regular RMB account.
  • There is an increased interest in using the In-House Bank model to drive greater efficiency and improved liquidity management for organizations globally. Services provided by In-House Banks vary from company to company, with the most common being payment factories, FX netting and Interco funding. This model drives further efficiency when the “pay-on-behalf-of” and “receive-on-behalf-of” structures are used.  

Thank you to the GCBG members who participated in the meeting preparation and discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange.

The NeuGroup’s Global Cash and Banking Group (GCBG) is an invitation-only group that brings together senior treasury professionals with responsibility for global cash management or treasury/banking operations to share challenges, solutions and knowledge. GCBG is part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

Blog entry
By mkmoore, September 26, 2013

We would like to thank returning sponsors Reval and FXall for jointly supporting the summer 2013 FX Managers’ Peer Group 2 meeting last week, hosted by member Thomson Reuters in New York City. Similar to the previous week’s meeting with FXMPG2’s sister group FXMPG, Reval anchored a session on hedge metrics and risk analytics.

In a different angle on the metrics topic, FXall took the group through the reporting capabilities by which FX managers can track performance on trades executed on the FXall platform. These Execution Quality Analysis (EQA) reports are designed to answer questions like “how does my trading compare to the highs and lows of the day or with a reference rate?” and “when is the best time to execute orders by currency and size?”

Per the Dodd-Frank Act, all platforms that intermediate swaps on a multiple to multiple-basis must register as a swap execution facility (SEF) by October 2, 2013. Representatives from FXall, which expects its approval as a SEF by this deadline, highlighted adjustments to the system that will allow users to comply with requirements of the law, for example whether they elect the end-user exemption or not, and whether the specific entity for which the trade is executed needs to designate it as a SEF trade or not. If a corporate elects to join a SEF, FXall or another one, the speaker noted several to-dos in preparation, including reviewing processes for confirming, clearing and settlement for regulated and non-regulated trading, and how SDR reporting obligations will be handled.

At this event, two members gave well-received “from soup to nuts” descriptions of their companies’ FX programs; other case studies dealt with hedge reporting and metrics (a theme mirrored by the sponsors) and the pros and cons of net investment hedging.

Thank you to all of the FXMPG2 members who participated in the discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange.

The NeuGroup’s FX Managers’ Peer Groups (FXMPG and FXMPG2) bring together senior treasury professionals with responsibility for corporate foreign exchange management to share experiences and best practices with their peers. FXMPG1 & FXMPG2 are part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.