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

Blog entry
By thoward, November 21, 2016
In the November issue of iTreasurer, we delve into the aftermath of two big regulatory and tax issues: money market reform and the US Treasury’s new tax rules on inversions, otherwise known as Section 385. We also discuss recent visits by intrepid NeuGroup reporters to recent conferences in Vienna and Orlando, Florida.
 
Beginning on page 1 is our look at the aftermath of Treasury’s Section 385 implementation. Despite expectations for a bad outcome, Section 385 turned out to be not nearly as onerous as expected. Corporates got the carve-outs that they were looking for; however, Treasury kept certain parts of the rules that will keep treasurers busy nonetheless. Also in a bit of history, making the distinction between debt and equity has been controversial for more than 30 years. And in an attempt to sort out the jungle of court decisions related to the issue, Congress made 385 part of the Internal Revenue Code in the Tax Reform Act of 1969, which gave the Secretary of the Treasury license to “issue regulations as may be necessary or appropriate to determine whether an interest in a corporation is to be treated… as stock or indebtedness.”
 
In our peer group meeting summary this month we showcase the Global Cash and Banking Group. At its meeting in California in the spring, members discussed the future of eBAM and whether treasury sees any value in it; this is because eBAM adoption rates have been low due to a lack of standardization among banks. Members also discussed M&A integration and the importance of building a model to integrate/divest businesses in a more efficient manner as well as the resurgence of in-house banks.
 
Reporting on the proceedings at October’s Eurofinance meeting in Vienna, contributing editor Anne Friberg discusses whether treasury reached its “tipping point.” The answer is “yes, probably,” writes Ms. Friberg: “a tipping point toward a broader and more strategic remit, under increasing pressure to do more with less, but with opportunities to take advantage of innovation from banks and fintechs, while perhaps faced with bank relationship challenges in the context of the choice to bundle or unbundle certain services.”
 
On pages 14-15, contributor John Hintze writes that there could be some hope for beleaguered prime money market funds (MMF) now that the October 14 SEC rules have kicked in. That’s because two trends are shaping up that could bring cash back to the funds after it left for government funds ahead of the new rules. “One is that spreads between institutional prime and government MMFs have widened since the October 14 compliance deadline of new rules,” Mr. Hintze writes. “The second is that prime fund portfolios’ weighted average maturities (WAMs) have lengthened somewhat. These shifts may eventually bring back some lost luster to prime funds for corporate treasurers, but so far inflows have yet to materialize, and views split sharply about whether they ever will.”
 
Nonetheless, there remain skeptics who doubt that prime will recover any of the departed cash. “From what we’ve heard, no matter what the yield on prime MMFs, they’re not going to see money return,” one observer notes in the story.
 
Enjoy the issue.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com. 
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Blog entry
By jneu, November 17, 2016

T30 session at Chatham Financial focuses on organizational and political-economic disruption.

The Treasurers’ Group of Thirty meeting at Chatham Financial this week focused on management of disruptive forces brought about by acquisitions or spin-offs impacting the majority of member companies at the meeting; the “shocks” from unexpected political outcomes, namely, the Trump victory in the US presidential election following the Brexit vote in the UK; and the increasing prospect of a massive change in US tax rules that may end the concept of cash being trapped off-shore by them for US multinationals.

Key Takeaways:

  • Fresh thinking on finance functions and capital structure. Integration of finance functions as part of a merger, but more so the creation of a new finance function and capital structure for a spin-co, brings the opportunity to apply fresh thinking to existing finance organizations, structure and actions. Whenever you have the opportunity to bring out a blank sheet of paper, new ideas and fresh thinking comes about that should be applied where possible. Strategic acquisition and divestures are already a disruptive force for the majority of member companies at the meeting and the trend is arguably only going to accelerate in light of a turn in the bond market and expectations for off-shore cash becoming available for US use.    
  • Be prepared for disruption. The Trump election result, close on the heels of Brexit, fuels the perception that disruptive events are happening more frequently. This has lessons for financial risk management, especially in foreign exchange, which tends to be a leading indicator and reactive measure. Chatham, for instance, suggested more rigorous review of currency correlations to inform portfolio-based approaches to exposure management as a result.
  • US MNC liquidity and intercompany funding about to be disrupted. The Trump win and Republican retention of Congress put a high probability on tax reform that will allow US MNCs to repatriate off-shore cash without the current tax penalty. The ability to do this will provide powerful new flexibility to finance structures, but this transformation will also be disruptive to current multinational liquidity and intercompany funding structures. Thankfully, the negative disruption of the proposed Section 385 rules were almost wholly averted in the final rules. However, the high probability of tax reform represents an even larger, albeit positive, disruptive force. The dynamics of the treasury-tax partnership will certainly not be the same.  

The likelihood of these disruptive forces impacting members through-out 2017 and beyond is almost certain.  Accordingly, validating member actions in response to disruption and building confidence in these actions will be high on the agenda for our next meeting.  

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Blog entry
By brichardson, November 11, 2016
More than 20 new members are expected to attend the inaugural meeting of The NeuGroup’s newest peer group for assistant treasurers.  
 
In the second half of 2012, The NeuGroup launched the AT30, a peer group for assistant treasurers of large MNCs. The group was full by the second meeting and has remained at or near capacity ever since. Meanwhile, many other companies have inquired about participating.
 
Now, The NeuGroup is pleased to announce the launch of its second group for assistant treasurers, The Assistant Treasurers’ Leadership Group (ATLG), which will meet for the first time November 30-December 1 at the offices of Dolby Labs in San Francisco. 
 
Members will kick off the meeting by introducing themselves as well as their companies and treasury organizations. To follow will be a brief tour of Dolby’s newly completed theater, featuring the latest sound technology. The afternoon also includes a session on developing optimal capital structure, led by sponsor Wells Fargo. The group will consider the levers and variables to evaluate when forming a company’s capital structure. 
 
Day One will close out with a session also featured on the agenda of the original AT group, focused on working capital management – the lifeblood of every organization. Looking for approaches and tools for squeezing the most out of operation is of keen interest to treasury, even if not directly responsible for it. 
 
On Day Two, members will participate in an Open Forum, a time to discuss items not on the agenda and to take advantage of the collective knowledge and experiences of the group. And finally, the meeting will conclude with a session on the perpetually elusive topic of cash-flow forecasting, arguably one of the most challenging responsibilities for any treasury group. With a slew of new members, perhaps we will find someone who has cracked this nut.  
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
 
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Announcement
By wchan, November 09, 2016
The NeuGroup’s Asia Treasurers' Peer Group (ATPG) met at Caterpillar’s Singapore campus last month to discuss a wide range of issues, including derivative regulations and how they are revolutionizing the financial markets. 
 
Here are some highlights from the meeting:
 
• Derivative regulations will make hedging costs prohibitive in the near future. Global implementation of margin rules, which follow from regulations governing derivative transactions, are starting to be applied around the globe. The US is leading the way in applying the rules, followed closely by the EU; Asian countries will start enforcing the rules in the coming months. Starting 1 March 2017, counterparties of derivative transactions in HK, Singapore, Japan and China need to exchange daily margin. It is estimated by some accounting firms that these derivative regulations will lock up liquidity to the tune of several trillion dollars. Cross-border differences will become apparent, with banks in Japan, Singapore, Hong Kong and Australia being in possible advantageous positions versus US & European banks. One can expect settlement timing to become shorter in order to minimize the daily variable margin that is locked up in custodian accounts.
 
• Banking strategy supports regional business growth. With regards to banking services, the degree of centralization in operational execution depends on specific treasury activity. However, a few members shared that their organizations are moving towards a decentralized banking model to support business units in less "bankable" transactions. Companies are willing to reward banks that help drive revenue growth for business units. Asia treasury teams are given more power to develop local banking relationships that partner to support the corporate business growth in Asia.
 
• Cybercrimes in the area of payment fraud are on the rise. Members shared that they have all experienced more frequent cases of cybercrime involving payment fraud. Often these cybercrimes occur cross-border, and dealing with law enforcement across jurisdictions is a challenge, and sometimes involves Interpol. Some member companies are purchasing insurance coverage to protect against such crimes, while other members are focused on refining internal controls to mitigate risks and vulnerabilities, e.g. workflows on vendor master updates, payment procedures, daily payment limits and tightened e-banking administration.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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Blog entry
By afriberg, November 07, 2016
The European Treasurers’ Peer Group (EUROTPG) focused on best-in-class treasury reporting, optimized treasury organization and payments innovation.
 
The EUROTPG has set the agenda for its November 22 meeting, which will take place in London at HSBC. The one-day agenda, half of which is for members only, will include:
 
Centralizing Treasury Solutions – The Long-Term Value: In this session, the group will look at how to unlock the long-term value of treasury by way of centralization, rationalization and standardization. Members will also consider the role of regional treasury centers and shared service centers in the treasury organization for optimized treasury function and service delivery to the business.
 
Best-in-Class Reporting: How well are you communicating your Treasury story to the Board, senior management and other groups in finance? As corporates continue their quest for efficiencies, there is increased emphasis on finding the right KPIs to measure effectiveness and promote Treasury’s value-add within the company. This session will include examples of the types of metrics and report formatting – not usually the same – that work well to inform treasury’s key constituents.
 
Regulatory Update and Corporate Response: Innovation and efficiency pull treasury practices in one direction while taxes and regulations pull it in another. Members and sponsors will discuss the regulatory impact on efficient treasury practices. Top of mind at this time are the OECD BEPS initiatives and their “translations” into specific regulations like Section 385, resulting in increased documentation requirements to justify liquidity structures and intercompany loans and transaction management.
 
Payments and Payments Innovation: Several trends are combining to transform the global payment landscape. Digital or cash-less payments are gaining the upper hand; fintech firms are seeking more efficient ways to overcome the legacy payment systems built for local and not global payments, batch and not real-time processing, using technology ranging from email to blockchain/distributed ledgers; and banks are investing heavily to keep their lead in the payments space. All this and more calls for a review of current services, processes and business models.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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Blog entry
By jneu, November 06, 2016

The Tech20 Treasurers' Peer Group celebrated its 15th Anniversary last week. Here are my Founder's Takeaways.

 

It was quite exciting to come from our Asia CFO meeting at Shanghai Disneyland to the Carneros Resort and Spa in Napa Valley, CA to celebrate the 15th Anniversary of Tech20. Tech20 had its first meeting in Napa Valley in November 2001. The success of that meeting and its membership peer group model marked the beginning of the transformation of NeuGroup, the company I founded some 7 years earlier, from a newsletter publisher that produced roundtable seminars on topical treasury issues into a knowledge exchange network for members. All of our now 18 different treasury and finance peer groups have Tech20 to thank. Also, as I emphasized at the celebratory dinner, knowledge exchanged at each of our peer groups is meant to encourage every member to realize their potential in their current finance roles, as professionals and as individuals.

 

These groups also create tremendous value. To put this in perspective, the value of companies in Tech20 has gone from $800B in 2001 to $3.3T today, as noted by Bob Kilcullen, Managing Director for Corporate Advisory at MUFG, the 15th Annual Meeting sponsor. 

 

 

In the video recap above, I share two top takeaways from the meeting itself. 

 

  1. A shareholder distribution metric. A slide in the capital allocation session suggesting a revenue growth to distributions linkage proved to be the top takeaway for many. Comparing your company to peers by looking at the current three-year revenue CAGR vs. the last three years' distribution yield (dividends plus repurchases) proved to be such a compelling benchmark that most members had a chart showing their position relative to their sub-sector peers before the meeting ended (having emailed back to the office for staff to prepare it). 
  2. Retaining and motivating talent. Talent management continues to prove a challenge for treasurers. In the Bay Area, where many members are based, the competition for treasury talent has created scarcity and driven up compensation--plus, the high-cost of living in this part of the world keeps new talent from moving in. Millennials and their desire to hold relevant jobs and grow constantly is a related factor of concern. The pressure to retain talent to support growth also causes a dilemma for talent management in clearing a path to promote high potentials while also maintaining sufficient staffing to grow.

 

A special thank you to first-time Tech20 sponsor MUFG for their support of our 15th Anniversary event.  

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Blog entry
By thoward, November 04, 2016
The Internal Auditors’ Peer Group (IAPG) gathered last month to discuss top priorities, which included auditing new processes as their companies transform, cybercrime, and compliance and what to present to the audit committee.
 
There was a lot on the minds of The NeuGroup’s IAPG members as they gathered at SunPower in San Jose. In their opening remarks and introductions, several discussed dealing with new configurations to their companies, including divestitures, spinoffs, M&A integrations, acquisitions and rapid growth.
 
Company transformation. On the M&A front, one member discussed how in the midst of integrating a new acquisition, a lot of IA talent was lost at the newly acquired company as many anticipated being fired anyway. But at this point there were no plans to let anyone go. This has made the integration process a bit more time consuming and difficult to plan for.
 
Other members are dealing with resource issues in the wake of mergers and spin-mergers. One says his company, acquired several months ago, was dealing with a very extreme new way of doing things – Basically, the bottom line matters more than anything else. On the one hand, it creates a very tense environment where everyone is in “survival mode,” while on the other, it makes detecting fraud easier because everyone has to report/justify their budgets down to the penny. 
 
Another member has an issue in that her company is a serial acquirer that doesn’t always think through the purchase. This raises several issues, including setting up governance structures for all the new entities and then what to do with acquisitions that are later shut down (IP, data security issues). 
 
Compliance. Companies in the post-2008 crisis era have to deal with an ever-growing amount of compliance obligations. This puts internal audit at the center of the issue of making sure everyone in the company is complying with the policies they’re supposed to be complying with. In many cases, this puts IA at odds with legal, which has a fear of compliance issue potentially putting the company at legal risk. Also, ownership of policies (and tracking whether they’re being followed) becomes an issue when no one thinks a policy is their responsibility. Many in management think whom-ever writes the policy also is in charge of that policy (but that’s not always the case). The upshot is it’s easy to write the policies and send them out to the business units; but it’s much harder to set up a coherent or organized compliance structure.
 
Audit Reports & AC Reporting. One issue that came up in the discussion on audit reporting to the audit committee was putting the right emphasis on certain risks. For instance, there are differences between low-risk reports from a high-risk region and high-risk reports from a low-risk region – This means a “red” for one country isn’t same as the “red” for another. 
 
Also to consider: maturity of the company and how it feels about risk. An older company might be more comfortable with carrying some higher risks than a younger company just starting out.
 
Cyber. There is great risk of loss for all companies if a breach occurs, but for some in the group there is the added risk of being fined or otherwise penalized by customers who saw their data involved in any security breach. For some companies, multiple instances of an ERP makes securing systems that much more difficult.
 
A five-step approach was created by one member:
1. Define IT risk tolerance
2. Agree on cybersecurity framework: identify, protect, detect, respond, recover
3. Identify critical data & systems
4. Define risk based audit plan
5. Assess results
 
The next meeting of the IAPG will be May 24-25, 2017.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information.
 
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Blog entry
By bshegog, November 03, 2016
After two years of waiting, money market fund regulations took effect on October 14. Now the Treasury Investment Managers’ Peer Group is asking, “Where do we put this cash?” 
 
The TIMPG gathered last month in Santa Clara, California, to discuss issues related to the MMF reform and subsequent impacts to the market. Members face low rates, floating NAVs and credit issues, not to mention FX volatility, tax policy and the upcoming election. As sponsor Credit Suisse noted, the group is confronting a challenging environment. Here are some key highlights from the meeting:
 
• Massive shift out of Prime Money Market Funds. It is estimated that over $1tn dollars has left prime funds, most of it headed to Government money market funds. Many members have moved liquidity funds from prime funds to Government funds, but they wonder how long it will last. Members shared alternatives to prime funds, such as short-term bond funds and separate accounts, as well as what triggers will tell them it’s time to head back to prime funds. 
 
• Senior secured loans offer an attractive floating rate spread over Libor. John Popp and Jeff Cohen from Credit Suisse walked members through the highlights of this asset class, which include instruments secured by collateral, repaid before other debt obligations, and offer current spreads of Libor plus 145bp for AAA to AA rated CLO issues. This is hard to beat. Their presentation certainly intrigued members and motivated them to give this sector a look.  
 
• Quality of a forecast is more related to way of thinking. A special lunchtime speaker, Michael Mauboussin from Credit Suisse, led a discussion on sharpening forecasting skills. Many traits of a super-forecaster, such as personality, training and how they work in teams, could also assist members in being better managers and mentors. 
 
• Credit, credit, credit. One TIMPG member walked members through his corporation’s internal credit analysis process. A successful program monitors investment closely. It is important regardless of internally or externally managed programs to have a process and metrics in place to monitor credit daily, weekly and monthly. Talking to the street, monitoring metrics like credit default swaps and equity prices, and good communication are critical to the credit process and avoiding unwanted volatility in the credit portfolio.   
 
How will MMF reform change the dynamics of the short term fixed income market? Will the Fed raise rates in December? There are still a lot of questions regarding the market, but members left the meeting better prepared to navigate uncertainties and understand signals of possible change to prompt quick movement if needed.  
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information.
 
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Blog entry
By Anonymous, November 02, 2016
The Latin American Treasury Managers’ Peer Group (LATMPG) continues to be challenged by bank concentration, borrowing and working capital issues. 
 
Members of NeuGroup’s LATMPG participated in a conference call last month to discuss the main challenges of treasury operations in Argentina, Brazil and Venezuela. Here are some highlights of their conversation:
 
• Argentina – Overall, a more positive outlook. Most members agree that challenges and risks associated with Argentina have significantly lessened after the loosening of capital restrictions. The main concern is how - economic performance (inflation, growth) will affect - business performance. Another issue faced by some companies is a limited and underdeveloped borrowing market.
 
• Brazil – Problems still lingering. Political and economic volatility remains a concern, although the economy seems to be taking a turn for the better. Long term, bank concentration is seen as a risk for the economy. In addition, the credit downgrading of Brazilian banks has resulted in increased cost of capital in the country.
 
• Brazil – Working capital woes. For those with extra cash in Brazil, getting money out of the country is still an issue due to an abundance of complicated documentation requirements. At least four members mentioned having working capital issues in Brazil. Most prefer not to inject anymore capital than necessary given the difficulties of getting it out later. Due to high local interest rates, members have been looking at I/C debt management and other tools to improve their working capital positions.
 
• Venezuela – Less relevant than before. The country is not getting as much attention as it used to. There are still issues getting money out of Venezuela and getting I/C paid. As companies are no longer counting on Venezuela to contribute to the business results or have outright deconsolidated it from the financials, the country has taken a back seat. While at least one member is planning to cease operations in Venezuela, others are trying to keep operations going in survival mode in case the country ever turns around.
 
The group will meet for its 2017 H2 meeting on April 6-7, 2017. 
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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Blog entry
By afriberg, October 28, 2016
Treasury’s contributions to key corporate initiatives, Section 385-friendly financing, best-in-class reporting and “speed dating” are on the agenda for the upcoming Tech20 annual meeting.
 
Members of The NeuGroup’s Tech20 are gearing up for their annual meeting in California next week, where they will continue to celebrate the 15th anniversary of the group’s founding. Sponsored by MUFG for the first time, the agenda will tackle: 
 
Treasury’s Impact on Key Corporate Initiatives: Treasury hasn’t always had a seat at the table to influence and add value to key corporate initiatives, but the good news is times are changing, and Treasury’s sphere of influence is expanding. The focus of this session will be on how to raise Treasury’s profile and value-add in the organization, and how to create a framework to voice Treasury’s reality checks on substantial corporate decisions. Two members will share their stories. 
 
Adapting Fundraising to New Regulations: New corporate rules will reach far beyond the few companies that moved their legal addresses to low-tax countries, forcing many US firms to change their internal financing strategies and tax planning. How are treasurers planning to tackle the impact of Section 385? A tax expert will review some of the key rules, and a member will go over the structuring of a recent “385-compliant” financing deal he made with sponsor MUFG as advisor. 
 
Best-in-Class Reporting: After reviewing one member’s reporting package, the group will discuss how well they are communicating their Treasury story to the Board, senior management and other groups in the finance organization, or to the business leadership. In the search for improvements and efficiencies, the right KPIs to measure and promote Treasury’s valued-add and effectiveness take on higher importance.  
 
Finally, the Tech20 will host a dynamic “speed dating” session for all participants to share a challenge or question with another participant and get input in return, or discuss an important takeaway from this or another Tech20 meeting. When the bell rings, conversation partners change.  
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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