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

We would like to thank Bank of America Merrill Lynch for returning to Tech20 as sponsor of our insightful meeting last week at HP.  Their panel on the current shareholder activist environment was the first time this topic has had a standalone session at a NeuGroup meeting and brought new context to the cash distribution discussions that have been a focal point for Tech20, as well as our other treasurer-level groups.

Speaking of cash distribution, prominent among the member priorities introduced was how best to support current cash distribution policy, especially with regard to dividends, in the wake of Apple’s announcement earlier in that week. The ante has been raised for many members as a result. The same might be said for issuing debt to help fund distributions, too, in the wake of this week’s Apple bond issue.

Other meeting highlights included:

• Advice on the treasurer to CFO path. HP CFO and former Tech20 member Cathie Lesjak offered her insight.
• FX management program adjustments. A case-study of a member program highlighted recent changes and focal points to prepare for a world of cleared derivatives and greater OTC market transparency.  
• APB 23 rep practices and latest tax reform views. The increasing focus on off-shore cash makes this an important recurring topic.

Thanks to all the Tech20 members who participated in the discussions last week. Your shared insights and experiences are what continue to make the Tech20 meetings enlightening.

The Tech20 was founded in November 2001 for MNC treasurers in the technology sector. As the first NeuGroup, it is the catalyst for our unrivaled network of now more than 15 membership groups. The Tech20 remains the leading forum for treasurer-level peer knowledge exchange in tech. 

We want to thank Payden & Rygel for their sponsorship of our Treasury Investment Managers’ Peer Group (TIMPG) meeting last week at Qualcomm. As members move into a post-crisis mindset, a key meeting discussion topic was which new asset classes to consider adding as their cash portfolios grow and to counter the extended lower interest rate environment. But keeping with post-crisis lessons, another topic was how corporates should best monitor portfolio characteristics and the new risk introduced with these new asset classes.

• Emerging market debt by comparison. Among the asset classes offered for close consideration was emerging market debt (EMD), on which Payden & Rygel had bullish views, citing increasing numbers of investment grade issues. For most investors, EMD’s appeal will be impacted by the performance of the US economy. Payden’s Senior Economist Jeffrey Cleveland, and several members of its portfolio management team walked members through how government policies will affect the US as well as impact economies globally, with a particular focus on rates and key bond market segments.

• New asset classes stress portfolio analytics. TIMPG members also discussed the different solutions available to solve the increased need for portfolio analytics and risk management. Fortunately, more solutions are becoming available that fit corporate treasury budgets. One member cited their use of Bloomberg PORT product, as an example.

We thank our TIMPG members for their active participation. And with them, we would like to thank Payden & Rygel for their ongoing support of the TIMPG!

The Treasury Investment Managers’ Peer Group (TIMPG) was launched in September 2004. This NeuGroup for investment managers at cash-rich MNCs has since become the leading group for peer exchange on corporate cash investment practices.

After successful stints with our FX Managers' Peer Groups 1 and 2, Chatham Financial sponsored our Treasurers' Group of Thirty 2 (T30-2) meeting last week at Sysco in Houston.

One of the major themes of this meeting was communication—with your banks and with your employees, to increase productivity and head off tension. Here are some of the meeting highlights:

• Regulatory impacts still unfolding for treasury. The group heard from Chatham Financial on the topic of regulatory updates including the ongoing monitoring of Dodd-Frank and Basel III, and what important steps are necessary to ensure compliance.  “The CFTC is very concerned about when you’re being burdened by regulation.” This is not a joke, according to Chatham Financial’s Luke Zubrod in a discussion of Dodd-Frank. If your in-house bank is a separate legal entity, it is likely a financial entity and thus subject to clearing for market-facing swaps. However, it is also likely that the CFTC will make an exception due to the nature of the in-house construction. This amendment is a direct result of corporate lobbying, so don’t shy away from writing to regulators.
• Dynamic talent management is critical. We discussed the importance of having a dynamic and robust talent management program in place to keep top talent challenged and engaged, and agreed that it can be difficult to paint a clear Treasury career path for people looking at careers in finance more broadly. While rotations can ensure a steady stream of people, it cannot ensure a stream of invested, specialized top talent. One strategy for attracting such talent is to make treasury skills a requirement to move ahead in finance within the company, and to explore potential career paths with new hires and top performers.
• Pension benefits continue to change. Pension management was an important topic to members and will be followed up with a separate webinar over the next several months to discuss specific issues and concerns identified by the group. According to at least one member, a pension in the conventional sense is “a thing of the past.” As workforces become more mobile and pension liability becomes more nerve-wracking, members are increasingly freezing their DB plans, looking at cash balance plans and strengthening 401Ks.

Along with our T30-2 members, we thank Chatham Financial for their support of this meeting.

The Treasurers' Group of Thirty 2 was formed in June 2011 to complement our first Treasurers' Group of Thirty. Both NeuGroups serve leading treasurers of large multinational corporations from a cross-section of industries. Membership in the Treasurers' Group of Thirty 2 is by invitation only. 

NeuGroups for FX managers confront new data opportunities and challenges during joint FX Summit meeting.

The key message from The NeuGroup’s FX Summit, a joint meeting of our FX Managers’ Peer Groups, was that more quality information leads to better decisions. Underscoring this message, presentations by co-sponsors Deutsche Bank and FiREapps provided numerous examples of how information, technology and analytics should be improving the hedging practices of multinational corporates.

FiREapps has built its business around helping multinationals get at better information about their FX exposures from their various ERP systems and other data sources. Wolfgang Koester, CEO and Co-Founder of FiREapps, said his company’s one word mission is “Confidence: giving treasures and CFO’s confidence that they know what their FX results impacting EPS actually will be.” In the latest release of FiREapps, there are numerous filters to perform analysis on the exposure data and drill down by currency, reporting entity and more to both better understand the sources of FX exposure on company balance sheets and validate with control frameworks that the data being drilled into represents real exposure. From there, treasury can calculate the net exposure and hedge it both more effectively and with higher levels of confidence.   

Building on this theme, Ramon Bauza, Head of Deutsche Bank’s North America Capital Markets and Treasury Solutions Risk Advisory team, presented a simple way in which FX managers can hedge a higher percentage of their exposures to reduce the earnings volatility impact of FX at less cost. Such a strategy when combined with higher confidence in the validity of exposure information would give treasurers greater confidence to boost hedge ratios above the current 50% norm today without fear of ending up over hedged. 

Not all the data trends will be positive for treasury, however. Participants also discussed the latest reporting requirements for derivatives trades under Dodd-Frank. Members expressed dismay at the administrative hassles expected in reporting inter-affiliate hedges, but also the public information that swap dealers (plus exchanges and SEFs) are obligated to disclose. Some model-based funds will invariably seek to pump this data into their super sophisticated analytical tools to try to discern patterns to help them predict and counter corporate FX trades. This helps explain the increased interest in Algo trading by corporates to help mask M&A-related and other sizeable FX transactions, especially in thinly-traded markets.  eFX platforms, including Deutsche Bank’s, will therefore be increasingly easing the automation of such trade execution strategies and the regulatory reporting and other post-trade processing required by them.

Other highlights from the meeting included a presentation on commodity risk management by one of the group’s more experienced commodity hedgers and an update on the key drivers of the global economy and their impact on the USD, plus the latest on Venezuela. We thank Deutsche Bank and FiREapps for their sponsorship along with the members of both FXMPG 1 and 2 for their active participation.

The NeuGroup's FX Managers' Peer Groups have been serving FX managers from leading multinationals since 2002. These two invitation-only membership groups meet separately twice each year to share insight, experience and benchmark approaches to topical challenges. They conduct a joint summit meeting on a bi-annual basis.