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Turbocharging Treasury Automation

Treasurers predict a sixfold surge in the adoption of AI-enabled analytics tools.

Cash forecasts are notoriously unreliable, primarily because of limited visibility into current and forward-looking data. However, in a year when liquidity is going to come at a premium, treasury must develop a clearer understanding of where cash is today, and how much more is coming down the pipeline. Cognizant of this need, treasurers responding to NeuGroup’s 2023 Finance & Treasury Agenda Survey ranked improving analytics and modeling capabilities as one of their top five priorities for this year.

  • NeuGroup’s 2022 Cash Forecasting Survey found that one-month cash forecast accuracy was +/- 10% in 75% of the cases.
  • That is a very wide range when it comes to assessing a company’s ability to pay the bills and invest in growth.
  • Rising economic pressures and financial market volatility require that forecasts not only be more accurate but, in many cases, also more frequent.

Treasurers predict a sixfold surge in the adoption of AI-enabled analytics tools.

Cash forecasts are notoriously unreliable, primarily because of limited visibility into current and forward-looking data. However, in a year when liquidity is going to come at a premium, treasury must develop a clearer understanding of where cash is today, and how much more is coming down the pipeline. Cognizant of this need, treasurers responding to NeuGroup’s 2023 Finance & Treasury Agenda Survey ranked improving analytics and modeling capabilities as one of their top five priorities for this year.

  • NeuGroup’s 2022 Cash Forecasting Survey found that one-month cash forecast accuracy was +/- 10% in 75% of the cases.
  • That is a very wide range when it comes to assessing a company’s ability to pay the bills and invest in growth.
  • Rising economic pressures and financial market volatility require that forecasts not only be more accurate but, in many cases, also more frequent.

Smart automation. Yet collecting and analyzing data about current and future cash remains a largely manual process at many companies; this perennial pain point accounts for the more than sixfold forecasted increase in the adoption of advanced analytics tools over the next 12-24 months (see chart below).

  • AI-enabled analytics can improve forecast accuracy and increase forecasting cadence by automating data curation and applying sophisticated algorithms.
  • High-quality, consistent data is essential to the effectiveness of advanced analytics; NeuGroup’s findings reveal a projected 2.8x jump in the use of data management tools over the next two years.
  • Treasurers are beginning to move to next-generation smart automation: 24% of them expected to implement machine learning tools in the 12-24 months, compared to zero right now.

The benefit of bundling. The pivot to new tools reflects that many TMS vendors have struggled to provide effective forecasting solutions. While TMS adoption is still expected to grow by 43% over the next two years, all-inclusive systems are being supplemented and supplanted by emerging technologies.

  • Vendors that are incorporating AI and ML into their products are likely to see healthier growth rates and higher market share.
  • In one recent case, a member of NeuGroup for European Treasury said he selected a TMS that has incorporated AI into its core engine versus one with less sophisticated analytics capabilities.

Connectivity everywhere. The survey also shows a meaningful increase in the deployment of connectivity technologies, like robots and APIs. Both connect disparate internal and external source systems by automating the flow of data among them, and centralizing the storage of that data. Going forward, a combination of connectivity and data and analytics tools can potentially upend the need for an all-in-one system.

  • Bank APIs got off to a slow start, in large part because banks chose to develop proprietary protocols, making the technology less scalable. But API adoption is set to jump 4.1x over the next 12-24 months, as the technology matures and new, API aggregators and other middleware come on the scene.
  • RPA adoption is set to rise by 1.4x in the next two years.

A case to make. Granted, this may be a tough year for getting technology budgets, and some large-scale projects may be placed on hold. However, projects with a shorter and clearer ROI will continue to draw investment, and treasury has a strong business case for to make:

  • Many of its routine activities can and should be automated to reduce cost.
  • By employing tools like AI, treasury can make significant progress toward more efficient liquidity management and contribute greater value to senior management.
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ChatGPT, AI and the Future of Finance: An FP&A Leader’s Vision

Baxter International FP&A head Aaron Bloomer shares insights on how FP&A can lead finance into the digital future.

The buzz surrounding the OpenAI tool ChatGPT has highlighted the power of artificial intelligence and the potential for AI to bring the future of finance forward—in ways that will further disrupt and transform finance organizations.

  • That’s the jumping-off point for a lively Strategic Finance Lab podcast conversation between NeuGroup’s Justin Jones and Baxter International FP&P leader Aaron Bloomer about AI, advanced analytics and the leading role finance should play as corporations turn insights derived from data into strategic action.
  • Watch a video clip from the podcast by hitting the play button below. Then listen to the full interview by heading to Apple or Spotify.

Baxter International FP&A head Aaron Bloomer shares insights on how FP&A can lead finance into the digital future.

The buzz surrounding the OpenAI tool ChatGPT has highlighted the power of artificial intelligence and the potential for AI to bring the future of finance forward—in ways that will further disrupt and transform finance organizations.

  • That’s the jumping-off point for a lively Strategic Finance Lab podcast conversation between NeuGroup’s Justin Jones and Baxter International vice president of FP&A Aaron Bloomer about AI, advanced analytics and the leading role finance should play as corporations turn insights derived from data into strategic action.
  • Watch a video clip from the podcast by hitting the play button below. Then listen to the full interview by heading to Apple or Spotify.
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Time Crunch Facing High-yield Loans Without Fallback Language

As Libor cession approaches, borrowers that have yet to seek refis or amendments may face higher execution costs.

Libor will cease to exist on June 30, yet many borrowers in the high-yield loan market have yet to amend or refinance their loans to address the need to switch to a different reference rate.

  • Syndicated loans with the Alternative Reference Rates Committee’s recommended replacement (or “hardwired fallback”) language will be automatically converted to the Secured Overnight Financing Rate (SOFR) on June 30.
  • All other legacy loans must be either refinanced into a Libor-replacement reference rate or have their contractual language amended.
  • Treasury teams at companies with legacy loans must move expeditiously to refinance or amend their language.

As Libor cession approaches, borrowers that have yet to seek refis or amendments may face higher execution costs.

Libor will cease to exist on June 30, yet many borrowers in the high-yield loan market have yet to amend or refinance their loans to address the need to switch to a different reference rate.

  • Syndicated loans with the Alternative Reference Rates Committee’s recommended replacement (or “hardwired fallback”) language will be automatically converted to the Secured Overnight Financing Rate (SOFR) on June 30.
  • All other legacy loans must be either refinanced into a Libor-replacement reference rate or have their contractual language amended.
  • Treasury teams at companies with legacy loans must move expeditiously to refinance or amend their language.

Running out of options. A fall 2022 ARRC survey revealed that 51% of lenders prefer that borrowers refinance their loans, and 31% expect to amend the language.

  • Refinancing, the most efficient option, has been open to investment-grade companies; but the market had been mostly closed to riskier borrowers since last March amid financial market volatility.
  • “Loan market volatility has eased recently but we have not yet seen a significant uptick in refinancings,” said Meredith Coffey of the Loan Syndications & Trading Association. “That said, we are anecdotally hearing of more fallback amendments.”
  • Bond and loan analysis firm Covenant Review found that 84% of the 1,416 loans in the Credit Suisse Leveraged Loan Index are still priced over Libor. The index is comprised of the largest and most liquid speculative-grade loans.
    • “This time last year, I would have guessed 30% or less would still be on Libor,” said Ian Walker, head of middle-market research at Covenant Review.

The most challenging deals. Some leveraged loan borrowers may have to pursue costlier amendments if the high-yield market remains closed to them.

  • Nearly 10% of loans in the Credit Suisse index do not have any fallback language, according to Covenant Review. Unless these borrowers transition away from Libor before its cessation, the loans will automatically move to the higher prime rate, the fallback stated in most legacy syndicated loans.
  • The prime rate typically rests at least a couple of percentage points above Libor or SOFR, Mr. Walker said. “That’s the incentive for borrowers to transition.”

Better sooner than later. While 10% may seem small, it means approximately $140 billion of the $1.4 trillion leveraged loan market needs to move to SOFR by June 30—a transition fraught with challenges.

  • For one, refinancing or amending loans to include a lower rate requires unanimous consent of the lenders.
  • Loans can also be repriced, a route that allows borrowers to simply replace lenders that do not consent to the repricing. However, repricings are generally sought by borrowers to improve their economics, and lenders are likely to resist.
  • Whichever method, the path will become more challenging as the deadline approaches and lenders, legal counsel and other involved parties become more swamped with transactions.

Proposed relief. Recognizing the challenge ahead, the Financial Conduct Authority in the UK issued a consultation in November seeking feedback on publishing one-, three- and six-month US Libor on a “synthetic basis” through September 24, 2024.

  • The consultation period ended earlier this month and the FCA has yet to issue a decision.
  • An extension would give borrowers breathing room, Mr. Walker said, but if they wait and the proposal fails, then lenders’ position to negotiate terms will be even stronger as the June deadline approaches.
  • “Borrowers are probably more likely to get the best terms now rather than waiting until there’s a crush and trying to get their deal through,” he said.

Be aware. The Federal Reserve Board adopted a final rule December 16 that implements the Adjustable Interest Rate (Libor) Act passed last spring, replacing certain Libor rates automatically with benchmark rates based on SOFR. However, the Fed rule only applies to Libor transactions with no fallback language, and syndicated loans are typically written to fall back to the prime rate.

  • “If you’re a NeuGroup borrower, then you may have a mix of loans as well as floating-rate notes or other Libor contracts that have no fallback language,” Mr. Walker said. “So you need to be aware of the Fed rule, since there may be different ways the various instruments transition.”
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Girding for Trouble Ahead: A 2023 Crisis Management Playbook

Treasury and finance teams can better prepare for potential disruption and crises by codifying past lessons.

Over the last few years, treasuries have faced significant market and geopolitical shocks, including the onset of Covid, the war in Ukraine and extreme global financial market volatility. This year promises to be equally if not more challenging.

  • Respondents to NeuGroup’s 2023 Treasurers’ Agenda Survey listed an economic downturn as their No. 1 risk this year. Financial market volatility was tied with political uncertainty for second place.
  • On treasurers’ risk radar screens this year are an escalation in tensions between Taiwan and China, and political strife and currency devaluation in Nigeria, Peru, Chile, Brazil, India, South Africa and Turkey.

Treasury and finance teams can better prepare for potential disruption and crises by codifying past lessons.

Over the last few years, treasuries have faced significant market and geopolitical shocks, including the onset of Covid, the war in Ukraine and extreme global financial market volatility. This year promises to be equally if not more challenging.

  • Respondents to NeuGroup’s 2023 Treasurers’ Agenda Survey listed an economic downturn as their No. 1 risk this year. Financial market volatility was tied with political uncertainty for second place.
  • On treasurers’ risk radar screens this year are an escalation in tensions between Taiwan and China, and political strife and currency devaluation in Nigeria, Peru, Chile, Brazil, India, South Africa, Venezuela and Turkey.

The value of preplanning. To prepare for trouble ahead, treasurers must leverage lessons learned in past crises and develop an action plan, so they can respond immediately and proactively to unfolding events. Over these past couple of years, NeuGroup has provided members with multiple forums to address their pressing challenges and benchmark and identify crisis management best practices.

  • Examples include our popular Russia-Ukraine Crisis community (we often had over 100 members on these initially weekly, Monday-morning sessions); our Argentina Crisis community, as well as ongoing and targeted coverage of events as they unfolded through our flagship publication, NeuGroup Insights.

Crisis management learnings. The primary outcome from the various forms of peer exchange was the identification of key best practices in scenario planning and the development of early warning systems. Companies with significant investments in high-risk markets should review their exposures on a regular basis.

  • According to one member, “It’s important to have a solid playbook that outlines scenario planning as well as an effective early warning system, which need to be updated by regions two-to-three times a year.”
  • An effective early warning system should track indicators such as country credit ratings, credit default swap spreads, GDP, employment data, budget deficits, inflation rates and foreign currency reserves. The war in Ukraine introduced an added layer of risk, requiring careful monitoring of US and European sanctions.
  • By monitoring these indicators and establishing lines of communication with decision-makers, treasurers can be alerted to potential trouble ahead and take necessary precautions.

What to look out for. An early warning system should take into consideration the following key questions:

  1. Country credit ratings: Has the sovereign been downgraded by the ratings agencies?
  2. Credit default swap spreads: Is the sovereign at risk of default?
  3. GDP: Are there extreme movements in either direction?
  4. Employment data: Are there volatile shifts in labor market data?
  5. Budget deficits: Does the sovereign have a fiscal policy with outlays that are not met by tax revenues?
  6. Inflation rates: Is inflation at the sovereign increasing at low rate on a monthly basis, or at a rate higher than earned income percentage for long and protracted periods?
  7. Interest rates: Are the rates steadily increasing, decreasing or are they highly volatile?
  8. Foreign currency reserves: Does the sovereign have the necessary foreign currency reserves for trade settlement?

In case of a crisis. Our extensive conversations with members revealed the following important steps treasury should take to protect the company’s assets and operations. For example:

  • Establish and maintain clear lines of communication and decision-making processes with local operations and global decision-makers. Often, changes occur daily, and require an immediate action. The decision-making process should be announced by the CEO and should include a cross-functional crisis management team to ensure central coordination, communication and decisions.
  • Develop information channels for fact-checking and quick updates; leverage relationships with banks and risk advisors as well as local experts to make sure you keep track of new developments.
  • Connect with peers on a regular basis to source critical information and common approaches to solving emerging problems.
  • Consolidate local cash and establish local banking relationships for short-term working capital. Existing banking partners may no longer be able to support or protect corporate funds.
  • Maintain supply chain sustainability by ensuring continued supplier payments.
  • Consider long-term funding options and cash repatriation options, e.g., dividends, intercompany loans or royalties.
  • In extreme cases, assess the cost ramifications of exiting the market and consider different timing options.
  • Incorporate operational changes into financial reporting systems (TMS, ERP) as well as the enterprise risk management framework.
  • Build in monitoring mechanisms and automate alerts based on factors such as:
    • Failed invoices
    • Delayed banking payments
    • Failed FX settlements

By following these steps, corporate treasurers can minimize the financial impact of a crisis and ensure business continuity.

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Talking Shop: Determining the Interest Rate on Intercompany Loans

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].


Member Question: “I am exploring whether doing a ‘mini-credit assessment’ (similar to Moody’s model) is a meaningful exercise and a value-add change to our current policy, which is to treat all subsidiaries as created equal for the purposes of determining our credit rating for intercompany loan borrowing rates (i.e., a few notches below [the parent’s] credit rating).

  • “I am interested in what other member companies are doing in this space to determine the interest rates for intercompany borrowings in the absence of an external credit rating.”

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].


Member Question: “I am exploring whether doing a ‘mini-credit assessment’ (similar to Moody’s model) is a meaningful exercise and a value-add change to our current policy, which is to treat all subsidiaries as created equal for the purposes of determining our credit rating for intercompany loan borrowing rates (i.e., a few notches below [the parent’s] credit rating).

  • “I am interested in what other member companies are doing in this space to determine the interest rates for intercompany borrowings in the absence of an external credit rating.”

Peer answer: “Our credit spread is based on the ‘risk profile’ tier we assign an entity to. The tier is based on the nature of entity activity and the country they operate in. We use, for example, the [Allianz Trade] country risk rating to define country risk.

  • “[Allianz Trade] risk rating methodology combines three variables:
    • ‘The Macroeconomic Rating (ME), based on the analysis of the structure of the economy, budgetary and monetary policy, indebtedness, the external balance, the stability of the banking system and the capacity to respond effectively to (emerging) weaknesses.
    • Structural Business Environment Rating (SBE) measures the perceptions of the regulatory and legal framework, control of corruption and relative ease of doing business.
    • The Political Risk Rating (P), which is based on the analysis of mechanisms for transferring and concentration of power, the effectiveness of policy-making, the independence of institutions, social cohesion, and international relations.’

“The operational risk of the entity is generally contemplated in the country risk rating, using logic similar to Moody’s.

“Scale

  • Revenue: Sales in lower risk markets are less sensitive to surprise changes in country regulation.

“Business Profile (Pharma)

  • Product and Therapeutic Diversity: Lower risk markets tend to have better patient reimbursement and improved price predictability.
  • Geographic Diversity: Lower risk markets tend to have broader market segmentation (e.g., private market vs. government reimbursement only), plus better market intelligence.

“Patents and Pipeline

  • Patent Exposures: Lower risk markets tend to have better patent protection in place with better legal systems to ensure protection.
  • Pipeline Quality.

NeuGroup Insights: Paul Dalle Molle, a NeuGroup senior executive advisor, added: “When I was a banker, we helped a few multinational companies answer this question. That effort was driven out of our credit ratings advisory team and focused on providing a framework for a company to systematically categorize all its global entities. The big initial question is how granular you want your analysis to be, and what you are trying to solve for.

  • “One of the biggest motivations we found was the need for the CFO and treasurer to show business unit leaders that they had a systematic approach that was fair and that was part of an overall capital allocation policy. Accounting and tax also liked this approach because it helped insulate the company from future accusations of transfer pricing manipulation.
  • “The companies that were most interested in this had already established the basic principle that their subsidiaries around the world did not have the same degree of risk and that therefore they needed some ways to differentiate them for internal cost-of-capital calculations and intracompany borrowing rates in order to achieve something approaching ‘arms-length’ pricing.

“Five vectors stood out:

  1. Country risk: For this, companies adopted risk categories from rating agencies or specialized risk consulting companies.
  2. Ownership: 100% vs. joint ventures.
  3. Type of funding: the debt/equity mix, taking into account how local laws treat parent loans (in some countries they are automatically considered as equity).
  4. Source of funding (internal or third-party): On the question of granularity, our clients got very granular whenever joint venture partners and/or third-party funding was involved, but otherwise kept the analysis relatively light and easy to manage.
  5. Type of affiliate company: e.g., manufacturing, distribution, R&D, intellectual property, sales, etc.”
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Seeing Is Believing: Micron Collaborates With Procurement To Cut Costs

Treasury at Micron is partnering with the procurement team to mitigate financial risk from supplier contracts.

The US dollar and commodity price strength have provided treasury an opportunity to demonstrate its capability to accurately mitigate a company’s financial risk exposure. It has also increased awareness about the consequences of commodity and FX fluctuations at the business-unit level.

  • ​Micron Technology, a semiconductor company with global operations and heavy manufacturing in APAC, is US-dollar functional across its enterprise. Therefore, procuring tools and local operations introduce material FX exposure for the company.

Treasury at Micron is partnering with the procurement team to mitigate financial risk from supplier contracts.

The US dollar and commodity price strength have provided treasury an opportunity to demonstrate its capability to accurately mitigate a company’s financial risk exposure. They have also increased awareness about the consequences of commodity and FX fluctuations at the business-unit level.

  • Micron Technology, a semiconductor company with global operations and heavy manufacturing in APAC, is US-dollar functional across its enterprise. Therefore, procuring tools and local operations introduce material FX exposure for the company.

To address the risk, treasury is evolving its strategic value by working directly with procurement to identify commodity and FX risk embedded in supplier contracts and make cost-conscious decisions about which party should own the financial risk.

  • “It takes a lot of training and many small wins to obtain the confidence of the procurement team to convince them you are there not to add another level of red tape, but to support them to create value for the company,” said assistant treasurer Robert Lambert.
  • “Even with senior management involvement, you have to engage with local procurement teams to isolate and quantify exposure within contracts,” Mr. Lambert shared.

Getting in front of the risk. Before treasury forged the partnership with the procurement team, the company primarily insulated non-US dollar costs from FX fluctuations by isolating and hedging the exposure through FX derivatives. The success of this process was challenged by limited enterprise reporting capabilities.

  • With billions in supplier contracts, “The key is managing financial risk at the source,” Mr. Lambert said. “There are many ways we can go about minimizing the exposure. And even if we are not successful in converting the contract to US dollars, by bringing treasury in, as a company, we become more knowledgeable, so any hedging action we take can become more accurate and effective.”
  • While pricing contracts in US dollars may offer 100% protection against FX fluctuations, it can be costly when suppliers are local-currency functional, smaller and/or less creditworthy relative to Micron. In all cases, they pay a credit premium on top of the hedge cost, which they “charge back” through the price of the goods.
  • Treasury works with procurement to decide whether to price in US dollars (sometimes the counterparty is also dollar functional to create value for all parties) or in the local currency and then pull the exposure into the balance sheet (for payables) or cash flow hedging program (for anticipated expenses).
  • By partnering with procurement, treasury has changed the commodity index of contracts to one with more liquidity that is less expensive to hedge.
  • The preference is still to hedge the commodity exposure with the supplier to minimize the administrative burden. However, treasury can quantify the cost differential by working with Micron’s banking relationships to recommend the optimal hedge strategy.
  • Treasury focuses on supplier contracts of over $20 million to balance administrative burden with incremental value. And the effort has paid off. In some cases, treasury reduced the cost of specific contracts by up to 5% by assuming ownership of the currency exposure.

Optimizing working capital. The next step in working with procurement is managing working capital. “Treasury can quantify the difference between payment terms to negotiate better contracts,” Mr. Lambert said.

  • In many organizations, procurement does not have payment KPIs, so payment terms are not a priority. Treasury can quantify the impact on DPO, DSO and the cash conversion cycle to recommend which levers to pull to provide the best overall contract for the company.
  • While getting started may be challenging, the collaboration can improve these metrics once procurement sees the value. “We are responsive and easy to collaborate with,” explained Mr. Lambert, “and have access to more resources, from Bloomberg to our banking partners, to help them achieve the best overall outcome for the company.”

Building a process. The success of this collaborative effort depends on ensuring treasury is at the table before contracts are signed. In contrast, in many companies, procurement negotiates and signs the contract without consultation and with a specific goal: To meet its functional targets of reducing notional cost year-over-year, which are embedded in their performance assessment.

However, this mindset does not necessarily align with the company’s financial performance. “They just don’t have the visibility to always see the big picture,” Mr. Lambert explained. “In some cases, we were dramatically overexposed. We are looking to provide the businesses with context.”

  • Micron is creating a financial risk committee to oversee enterprise-wide financial exposures. The committee will include leaders from the finance and procurement teams to leverage skillsets to provide timely and optimized solutions to complex problems.

Building a relationship. In addition to the successful treasury-procurement partnership at Micron, the key takeaway from the engagement is the blueprint it lays for future intercompany partnerships that create substantial value.

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For Treasurers, 2023 Means Going Back to Basics

With companies facing strong economic headwinds, treasurers are doubling down on liquidity management.

Treasury’s core mandate is to support the company’s performance by ensuring adequate funding through smart cash management and external borrowing. According to NeuGroup’s 2023 Finance & Treasury Agenda Survey, treasurers plan to make that their number one priority this year (see chart).

With companies facing strong economic headwinds, treasurers are doubling down on liquidity management.

Treasury’s core mandate is to support the company’s performance by ensuring adequate funding through smart cash management and external borrowing. According to NeuGroup’s 2023 Finance & Treasury Agenda Survey, treasurers plan to make that their number one priority this year (see chart).

The survey also showed that treasurers are targeting improvements in analytics and modeling capabilities, which came in at number three this year, up from seven in 2022. After years of ample cash, liquidity is at a premium; however, our 2022 Cash Forecasting Survey revealed that the majority of treasuries struggle to produce a reliable cash forecast. The latter is a prerequisite to making smart funding and investment decisions.

By adopting advanced analytics solutions with built-in machine learning and AI tools, treasuries can achieve greater accuracy while reducing overall workload. According to our data, full implementation of advanced analytics solutions will more than triple from 17% currently to 57% in the next 12-24 months.

Recognizing the tradeoffs

The focus on liquidity plays directly into treasury’s core strength and will raise the function’s stature within the organization; however, the return to basics has also triggered a “downgrading” in the importance of other objectives. For example, collaborating with business partners dropped to number four this year, down from the top spot in 2022. Digital transformation (#3 in 2022) fell to the sixth slot, and talent development ended up eighth, down from the fifth spot last year.

This reprioritization reflects the harsh reality of a challenging economic environment, in which initiatives without a clear or immediately positive ROI are often starved for resources. Treasurers must be cognizant that in making these tough choices, they accept some potentially dangerous tradeoffs, i.e., they run the risk of losing momentum or even ground on important initiatives.

Perhaps the most worrisome shift in the rankings involves the fall of digital transformation to sixth place. The growing pressure on profit margins, from higher cost and lower revenues, translates into a need for significant cost reduction, hence greater automation. While some projects exhibit a quick payoff (e.g., some RPA projects), others take longer to show a positive ROI. Regardless, failing to progress or even decelerating digitization efforts will end up costing more in the long run.

Plus, the low priority given to digital transformation is perplexing because, as the chart below shows, survey respondents ranked inadequate technology (a missing or fractured tech stack) and lack of access to a single source of data as the number one and two obstacles to realizing their overall 2023 goals.

The challenge for treasurers is to continue to move forward on automation, even when budgets are tight. Making a strong case for a TMS has been a perennial challenge and may become more so in this economic climate. But treasury has other options. They can piggyback on larger finance transformation initiatives by convincing the CFO that there are good use cases in treasury for other technologies, e.g., RPA or even analytics tools embedded in FP&A planning systems. We already see the early signs of migration to robotics solutions. According to our survey, while full-scale implementation of RPA will remain at the current level of 33% into ’23-’24, the percentage of treasurers that plan to pilot robots is expected to jump by nearly five times from today’s 5% to 24% in the next two years.

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Python Paves the Way for Improved Investment Performance

A NeuGroup member shares his company’s success using data analytics and automation to optimize portfolio returns.

Data analytics and automation are increasingly popular tools for corporates looking to optimize the management of their investment portfolios. At a recent meeting of NeuGroup for Cash Investment 1, sponsored by Lord Abbett, two members from a Silicon Valley technology company presented on how they led a four-month project leveraging Python to pull critical data into an Excel spreadsheet on a daily basis to monitor the company’s CD and commercial paper investment portfolio—saving approximately 40 minutes a day.

  • Multiple other members at the meeting were surprised by how quickly the member was able to implement this project, as well as how smoothly the Python script interfaces with the Bloomberg Terminal.
  • “By using Python, we’re able to save time and improve yields by quickly analyzing thousands of tickers and providing our portfolio managers with real-time data on market conditions and investment opportunities,” said the treasury manager who coded the solution.

A NeuGroup member shares his company’s success using data analytics and automation to optimize portfolio returns.

Data analytics and automation are increasingly popular tools for corporates looking to optimize the management of their investment portfolios. At a recent meeting of NeuGroup for Cash Investment 1, sponsored by Lord Abbett, two members from a Silicon Valley technology company presented on how they led a four-month project leveraging Python to pull critical data into an Excel spreadsheet on a daily basis to monitor the company’s CD and commercial paper investment portfolio—saving approximately 40 minutes a day.

  • Multiple other members at the meeting were surprised by how quickly the member was able to implement this project, as well as how smoothly the Python script interfaces with the Bloomberg Terminal.
  • “By using Python, we’re able to save time and improve yields by quickly analyzing thousands of tickers and providing our portfolio managers with real-time data on market conditions and investment opportunities,” said the treasury manager who coded the solution.

A snapshot ready in a snap. In the past, treasury used Excel to execute the daily process of analyzing the company’s investments in daily commercial paper and CDs, including breakdowns by sector, maturity, rating, country and issuer.

  • “Each morning, before we look at what’s available on the CP and CD market, we run this report so that we know what industries, issuers, countries, and financial vs. non-financial investments we can focus on—and which we should filter out if we are already fully allocated,” the treasury manager said.
  • The previous process was time-consuming, prone to errors and had to be executed early in the morning, so traders could have access to data when markets opened; this was especially difficult for a team located on the West Coast
    • Prior to switching to the new approach, treasury staff had to paste Clearwater data into Excel and manually scan it for any errors that prevented Excel from completing its calculations, which could take up to half an hour. Errors could occur due to corrupt data inputs or an issue with Excel’s connection to Bloomberg.
  • Now, each morning, the treasury team still downloads data from Clearwater but simply executes the code once it is downloaded, which takes less than two minutes. The code generates individual tables in a new Excel file based on the portfolio’s performance.
    • The treasury manager said that the impact of the seemingly small automation adds up in a big way. This process could take up to 40 minutes each trading day, which adds up to 21 full working days of productivity a year lost to the manual task. “The impact of time saved is greatly magnified and improves the overall investment process,” he said.

Extracting from Bloomberg. Meeting participants were particularly impressed by the seamless connectivity with Bloomberg. While there is an existing API that transfers most of Bloomberg’s data directly into Excel, it does not include a crucial subset of the data that’s required to get a complete view of the portfolio’s performance.

  • “On the ‘BOOM’ screen, there is no way to [fully] connect, you literally have to click download,” the treasury manager said. “I decided that was frustrating, so I created a way for Python to automatically enter the command to download that, so as long as you’re logged into the terminal, you don’t have to do anything else.”

Critical success factors. The treasury manager who coded the project, along with the senior treasury director who oversees the company’s investment portfolio, outlined the following steps for building a successful automation.

  • Talent. Even before the start of the Python project, the senior director was pushing for more technical solutions to be developed within treasury. This required acquiring or developing a specific skill set, which the company approached by emphasizing programming proficiency in new hires and providing training to existing staff. The in-house creation of the Python script is evidence of the success of this approach.
    • “All of us started taking Python classes,” the senior director said. “I’ll be the first to admit I didn’t get anywhere near proficiency, but what it allowed me to do as the portfolio manager is to be able to communicate—I now know what Python can do and what it can’t do.”
  • Innovation. After ensuring everyone had a base-level knowledge of programming languages, the team met regularly to identify additional manual tasks that were ripe for automation.
    • The treasury manager who coded the program said he was inspired to launch the portfolio snapshot project by conversations at NeuGroup meetings.
  • Execution. It’s also essential to ensure that the project lead has the capacity to execute on it, which sometimes can mean prioritizing it over day-to-day activities. It took the treasury manager an average of 12 hours of work per week over the roughly four months of development time.
  • Continuous improvement. The work does not end with implementation. To ensure the solution remains effective, and to see how it can be improved, the team has weekly meetings to discuss the status of the project.
    • “I show the team what I’ve done, and they can share ideas for enhancements and fixes,” the coder said. “It’s a continuous process of every week, people giving feedback, working on that, and building it out. It’s been a valuable process for us, and we’re excited to see what the future holds.”
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Outside In: FP&A’s Role in Leading Finance Transformation

After completing finance transformation initiatives at two companies, one NeuGroup member shares keys to success.

Accelerating the finance function’s digital transformation is one of the leading priorities for NeuGroup members heading into 2023, as many corporates seek to overhaul outdated, tactical finance organizations and embrace a more strategic, forward-thinking mindset. But where do you start? For Aaron Bloomer, vice president of global FP&A at Baxter International, the answer was simple: FP&A.

  • “I’m a huge advocate of outside-in thinking,” Mr. Bloomer said in an interview with NeuGroup Insights after presenting at a session of NeuGroup for Mega-Cap Heads of FP&A. “Corporates can be insular. To be transformative, you need to see where you’re coming from and where you’re going,” which he said starts with FP&A taking the lay of the land.

After completing finance transformation initiatives at two companies, one NeuGroup member shares keys to success.

Accelerating the finance function’s digital transformation is one of the leading priorities for NeuGroup members heading into 2023, as many corporates seek to overhaul outdated, tactical finance organizations and embrace a more strategic, forward-thinking mindset. But where do you start? For Aaron Bloomer, vice president of global FP&A at Baxter International, the answer was simple: FP&A.

  • “I’m a huge advocate of outside-in thinking,” Mr. Bloomer said in an interview with NeuGroup Insights after presenting at a session of NeuGroup for Mega-Cap Heads of FP&A. “Corporates can be insular. To be transformative, you need to see where you’re coming from and where you’re going,” which he said starts with FP&A taking the lay of the land.
  • After previously implementing a finance transformation initiative at 3M, he was tasked with leading a large-scale transformation to modernize FP&A at Baxter in 12 months.

Straightening out priorities. After setting goals, Mr. Bloomer says the next step is to establish the priorities that will enable the company to achieve them. For FP&A, the five key transformation initiatives included:

  1. Planning and forecasting
  2. Reporting and analytics
  3. Standardization and operational rhythm
  4. Systems
  5. Master data management

What is FP&A? The next task, Mr. Bloomer says, is to take a step back and think broadly about what FP&A is and can be across the enterprise, and how the company will rely on it as transformation continues (see chart).

  • At the start, he said FP&A “was thought of as only the people who sit in corporate FP&A, so it wasn’t holistic; they had these positions like ‘plant controller’ or ‘local country finance’ in different regions that did FP&A tasks that were not actually thought of as FP&A.”
  • “There are many groups that are part of our global FP&A community, and it’s important we’re all aligned to the same vision on how we deliver value and work together to unite everyone across the ecosystem,” Mr. Bloomer said. He set this vision as: strategic business partners improving business decisions through analytics that deliver actionable insights.
    • He says FP&A is all about getting analytics at the fingertips of all employees within the company, not just reporting the numbers. Instead of leadership simply waiting on a report from FP&A, his team built constantly updating dashboards that function as a single source of truth, readily accessible by all employees.
    • He’s also established a dedicated reporting and analytics team based out of India as an end-to-end digital reporting factory, driving adoption of digital tools across the enterprise.
  • “A lot of times, FP&A teams are great at insights, but if you’re not influencing actions, you’re wasting time,” he said.

Splitting out, saving time. A key to supporting business partners, Mr. Bloomer said, is to remain agile and able to focus on the big picture, in part by pushing out time-consuming daily duties. “It’s important that each group works together but remains focused on where they can best add value to the company,” Mr. Bloomer said. “A lot of times, companies stick reporting or cash operations into FP&A or treasury, which is unreasonable.”

  • Mr. Bloomer opted for a hybrid approach to cash, splitting out cash FP&A as an independent team that collaborates closely with treasury and corporate FP&A. “Now I have to make sure my FP&A person, my cash person and treasury are all synced up, but that creates an alignment, a bond,” he said.
    • “A lot of organizations have forecasting in treasury or in corporate FP&A, and things just get lobbed over the fence and put into a black box, while 15 assumptions could change at any point; this better ensures the teams are synced up in real time and creates more focus on cash optimization.”
  • He’s also separated out a dedicated strategic FP&A team from corporate FP&A that partners very closely with corporate strategy and business development on capital allocation, portfolio management, external markets, inorganic opportunities and analyzing long-term scenarios. This allows the corporate FP&A team to focus more on day-to-day operations.
  • Even the company’s supply chain finance team ended up pushing out a number of tasks, standardizing the company’s process across all plants. He said the department was still doing all day-to-day transactional accounting activities “inside their four walls,” so is shifting activities into service centers and centers of excellence, leaving behind only value-adding business partners at the plants.

Three keys to transformation. During his experience heading transformation initiatives at Baxter and 3M, Mr. Bloomer has conceived three key tips to successfully bring finance teams into the future.

  1. Standardization. “People get excited about analytics, they get excited about automation, but if you don’t standardize your work, you will fail,” Mr. Bloomer said. “Get data in a usable spot—which doesn’t necessarily mean a single ERP for the entire globe, but a unified data integration layer, extracting data from multiple sources and dropping them into a data lake.”
  2. Speed. By starting the project with a 12-month target time, Mr. Bloomer was forced to make a strategic plan, which he said was key to its success. “It has taken about a year, and it’s been aggressive by design; we had to go fast,” he said. “Have things gone wrong along the way? Absolutely, but I’m a fan of ripping the Band-Aid off.”
  3. Lean structure. Baxter now collaborates with strategically placed centers of excellence in Poland, Costa Rica and India. “We’ve gotten our COEs to take on a lot more business partnering,” he said. “We’re setting up a one-to-one partnership, so the business team can go directly to the COE team, who is actually engaged. The structure directly relates to the five priorities.”

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Not Yet in Writing: Most Treasuries Do Not Have a Formal D&I Policy

D&I financing and investing activities at many companies are governed by informal guidelines.

New NeuGroup research reveals that 88% of treasuries do not have a formal policy to govern engagement with diversity firms, but a majority (56%) work within informal guidelines.

NeuGroup conducted the November 2022 survey in partnership with the National Association of Securities Professionals (NASP), Fitch Ratings and Sustainable Fitch. The responses came from members of NeuGroup for Cash Investment ManagersPension ManagersCapital Markets and our extensive D&I working group.

D&I financing and investing activities at many companies are governed by informal guidelines.

New NeuGroup research reveals that 88% of treasuries do not have a formal policy to govern engagement with diversity firms, but a majority (56%) work within informal guidelines.

NeuGroup conducted the November 2022 survey in partnership with the National Association of Securities Professionals (NASP), Fitch Ratings and Sustainable Fitch. The responses came from members of NeuGroup for Cash Investment ManagersPension ManagersCapital Markets and our extensive D&I working group.

Doing more, elsewhere. In interviews with respondents, the most commonly cited reason for not having a treasury-specific D&I policy is that the company believes it can make a more meaningful impact through other means, for example through direct community investment and hiring policies.

  • “I am not surprised that many companies do not have a formal policy for treasury,” said one treasury executive. “We believe we can make a bigger impact through other areas of the organization, like HR and sustainability.”
  • For example, after considering whether to invest cash in CDs at minority-owned banks, treasury decided investing directly in community projects will be more impactful, the member said.

Aligning with a corporate policy. Another reason for the absence of a treasury D&I policy is that many companies already have strong, enterprise-level policies that are cascaded down to different functions.

  • “We don’t have a formal policy, mostly because there is an overarching corporate strategy, and treasury has to do its part,” said one respondent. “We do a lot in the treasury space,” he added, “but this is not the organization’s focus.”
  • “We have a formal policy at the corporate level to promote D&I objectives,” another respondent said. “And our treasury team (capital markets, cash and pension investment) has done a great job being able to participate.”

A pragmatic constraint. Finally, particularly in the pension space, the selection of financial partners can be highly regulated.

  • “We cannot set hard targets because of ERISA’s fiduciary requirements, which determine asset allocation and the qualifications of external managers,” one pension manager said. For example, firms need to have a certain number of years in performance track record, which prevents some of the smaller or newer ones from getting a share of the market.
  • “It’s a chicken-and-egg situation,” added another member. “Managers cannot gain the track record because we cannot allocate them the business.” Yet, “despite ERISA, we ended up the year with 5% of our pension assets invested through minority-owned firms; we hope to see that share increase in 2023.”

A new phenomenon. While a formal policy is not a prerequisite for success, a documented approach has benefits. For example, absent a policy, “the risk is that when things change, for example during a recession, the initiative will fall down the list of priorities,” said NASP’s president and CEO Ron Parker. To this end, follow-up conversations with respondents revealed some are considering making their practices formal.

  • “Our investment policy governs duration and asset classes, but not engagement with diverse firms. It would be good to incorporate it, but we struggle with how to do that,” said one cash investment manager at a company that does extensive business with minority-owned firms. For example, she said, “because our cash is growing so fast, it would be hard to put in place specific targets. They will get out of date very quickly.”
  • A good way to build a policy is by connecting with peer companies that already have one in place. “We do have a policy that formalizes how we engage with diverse firms as part of processes and procedures,” one respondent said. “We have made some broad changes to it recently, and it now includes diverse firms as part of the evaluation of any new product or service; it has to be in the RFP. We also have a pre-vetted list of firms we can work with.”
  • “We don’t have a quota, but it’s a formal part of our process of consideration in the cash and asset management space,” another member said. His company has recently looked to expand its mandate. “We interviewed diverse firms in the debt capital markets space, but we are at an early part of our journey. There’s a lot at stake, and we want to get comfortable with minority-owned firms before we make significant changes.”

Early days. The scarcity of formal policies reflects the still-early stages in the evolution of treasury’s engagement with diversity firms. NeuGroup’s survey revealed that in over half the cases, when treasury has a documented policy, it has been in place for less than two years (see chart above).

  • “I started working to expand our initiative four-to-five years ago,” one participant said. “But we only formalized the policy two years ago.”
  • In another case, a policy was put in place three years ago, sparked by rising focus on ESG in general. “We wrote the policy to help clarify our thinking,” the member said. “The ESG and the D&I policies are one and the same.”

The right thing. “While treasuries may not have a policy for tracking engagement with minority-owned firms, they are doing it because it’s the right thing to do,” said Marshay Hall, head of communications and programs at NASP.

  • That said, NeuGroup data shows treasuries use the same performance metrics to evaluate diverse-owned firms as they do with other underwriters and managers. “There is no special treatment,” a respondent said.
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Talking Shop: Comparing FX Trading Setups

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses:  [email protected].


Member question: “We have started a big FX global project and we would like to discuss other setups where you leverage FXall as a trading platform with full integration to a TMS and payments solution and with a global footprint for trading.

  • “Does anyone have a FX trading desk and systems setup similar to ours (FXall, Kyriba and trading teams in different regions—APAC, EMEA and AMER)?”

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses:  [email protected].


Member question: “We have started a big FX global project and we would like to discuss other setups where you leverage FXall as a trading platform with full integration to a TMS and payments solution and with a global footprint for trading.

  • “Does anyone have a FX trading desk and systems setup similar to ours (FXall, Kyriba and trading teams in different regions—APAC, EMEA and AMER)?”

Peer answer 1: “We don’t have exactly the same setup as you described but I’m sure we have a lot to share/exchange.

“High level setup:

  1. “Corporate is consolidating and hedging all ‘exposures’:
    1. Balance sheet/transaction difference—net position is being hedged, about 100%.
    2. Earnings/guidance—partially hedged based on a statistical model (earnings at risk, efficient frontier, economic hedge).
    3. We also used to have interest rate swaps, cross-currency swaps and net investment hedging (hedge accounting).
  2. Three regional hubs convert FX for operational purposes (up to spot), mostly by the IHBs and supported by intercompany loans/deposits.
  3. Trading is being done through Bloomberg (corporate/derivatives) and 360T (regions/up to spot).
  4. Trades go through straight-through processing to our TMS (Quantum-FIS).
  5. Matching is done via Finastra.
  6. Corporate’s policy is in place, back office is by our global business services, and we have ISDAs and CSAs with our trading partners.”

Peer answer 2: “We use both FXall and Kyriba TMS and FX trading is fully centralized with the capital markets team in the US. I also have experience [at a previous company] where there were several trading desks across the globe using 360T, with integration into different treasury and risk management systems (Quantum/SunGard, Wallstreet Suite).”

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Bringing the Future of Finance Forward: Reflections on 2022

Key finance themes from 2022 include AI, digital assets, diversity and the role of humans in setting lines of defense.

By Joseph Neu

Here are six topics that drew my attention this year, all of which bring the future of treasury and finance forward.

Diversity and inclusion in finance. It was telling that with everything going on in the world, members of NeuGroup for Mega-Cap Treasurers were most animated at their H2 meeting speaking about efforts promoting greater diversity and inclusion at their financial services providers, including diversity-owned firms and their own teams. With the former, this could be rooted in the idea that capital purveyors can do more to bring the benefits of capitalism to the disadvantaged. They would do better at this if members of minority groups were better represented in their ranks. This holds true, too, for the procurers of financial services and their relationship managers in treasury.

Key finance themes from 2022 include AI, digital assets, diversity and the role of humans in setting lines of defense.

By Joseph Neu

Here are six topics that drew my attention this year, all of which bring the future of treasury and finance forward.

Diversity and inclusion in finance. It was telling that with everything going on in the world, members of NeuGroup for Mega-Cap Treasurers were most animated at their H2 meeting speaking about efforts promoting greater diversity and inclusion at their financial services providers, including diversity-owned firms and their own teams. With the former, this could be rooted in the idea that capital purveyors can do more to bring the benefits of capitalism to the disadvantaged. They would do better at this if members of minority groups were better represented in their ranks. This holds true, too, for the procurers of financial services and their relationship managers in treasury.

AI driving financial management. 
AI skeptics are coming around to how good artificial intelligence has become. Cash forecasting is one use case: “The accuracy of AI tools is amazing,” as one treasurer noted after telling us he had been a skeptic until a recent forecasting project had proven him wrong. There’s still a place for humans to offer judgment and overcome data bias in machines as they learn, but the path to becoming a line of defense as opposed to the initiator of financial management decisions is being set. More data to drive better decisions is being captured exponentially and new technology is making it possible to analyze it all faster than humans are capable. To the extent finance is a numbers game, why not let machine data masters take the lead?

Digital assets and crypto. All things Web3 deserve suspicion, given the fraud being conducted under cover of the hype surrounding them. Yet this has not dimmed the enthusiasm by certain cohorts within treasury at corporate enterprises for sharing and learning on digital assets, cryptocurrencies and the infrastructure plus capabilities to support their use. I chalk this up to a sense that trust in traditional finance (TradFi) and its institutions is waning (they may be only marginally better than the fraudsters) and the next generation yearns for something new.

Embedding finance in the business. A real-time decision tool, whether defined as AI, an algorithm or smart contract/code, upends the need for a centralized finance function in the same way decentralized finance (DeFi) upends the need for financial intermediaries. Financial decisions and actions are being put closer to the business in mundane areas such as approving invoices for payment. Algorithms can approve more and more of them instantly for payment and, hence, dynamic discounting or other invoice-based financing. Similarly, an aggregation of foreign currency payments, netted, can be traded by an algo and then algorithmically matched with the payments made.

Drawing up the lines of defense. Regulated businesses are constrained by three lines of defense. More of our members in unregulated businesses are being asked to establish lines of defense and focus more on operational and enterprise risks. This is a timely response to digital transformation. Algorithmic stablecoin failures showed the shortcomings of false embedding of treasury management into a business. But even the best financial algorithm cannot save unsound financial structures thought up by people. See the poor structure and unsmart contracts at FTX, the prominent and failed crypto exchange. Perhaps both people and machines need each other as a line of defense.

The true costs of energy transition. Reliance on fossil fuels produced by foreign countries and/or rogue states before alternatives are ready to bear the load has proven costly. And energy security costs are not the least of the cost concerns. As more finance teams start to drill into the costs of meeting net-zero emissions pledges, it’s becoming clear that it’s not just politicians who’ve led without thinking clearly about energy transition policy with a cost/benefit economics lens. It’s time to think about corporate energy policy with greater coherence and consistency as well as public policy. The financial implications of zero carbon emissions is one place to start. Smart firms have started trying to put a number on it, with the help of their banks and other financial advisors, and this will drive ESG thinking, sustainability ratings and climate risk disclosures increasingly. What are the risk-based economics of sustainability and should they be defined by zero emissions pledges on arbitrary timelines?

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Starting Treasury from Scratch: One Expert’s Not Secret Recipe

NVA treasurer Chris Ingoldsby shares insights grounded in his creation of the treasury function at two companies.

Building a complete treasury team is a marathon, not a sprint. However, there’s real value in a new treasurer scoring some quick wins soon after joining a company. That’s according to Chris Ingoldsby, an ultramarathoner who created the treasury function at NVA, and previously built it from the ground up at Riverbed Technology.

  • You’ll hear more insights from Mr. Ingoldsby about his approach to building treasury from scratch in the newest episode of the Strategic Finance Lab podcast, a conversation with NeuGroup’s Antony Michels.
  • Listen to the podcast now by heading to Apple or Spotify.

NVA treasurer Chris Ingoldsby shares insights grounded in his creation of the treasury function at two companies.

Building a complete treasury team is a marathon, not a sprint. However, there’s real value in a new treasurer scoring some quick wins soon after joining a company. That’s according to Chris Ingoldsby, an ultramarathoner who created the treasury function at NVA, and previously built it from the ground up at Riverbed Technology.

  • You’ll hear more insights from Mr. Ingoldsby about his approach to building treasury from scratch in the newest episode of the Strategic Finance Lab podcast, a conversation with NeuGroup’s Antony Michels.
  • Listen to the podcast now by heading to Apple or Spotify.

Endurance and risk-taking: NVA treasurer Chris Ingoldsby runs ultramarathons and enjoys hang gliding.

NVA, short for National Veterinary Associates, is a for-profit business owned by the European private equity firm JAB Holding Company, and comprises 1,500 locally run veterinary clinics, hospitals and pet resorts located in North America and overseas.

  • Because the company has a vastly different business model from the tech companies where he worked before, Mr. Ingoldsby stresses the need for an incoming treasurer to know what they know and then surround themselves with people with knowledge they don’t possess but need. It also helps to have an open mind, a taste for adventure and a tolerance for risk.
  • Mr. Ingoldsby—who in addition to running ultramarathons likes to hang glide—said this about his experience so far at NVA and making treasury a strategic partner of the business: “It was really kind of going out and figuring out how do I define treasury, what is treasury going to be? It really started out with the basics….creating the building blocks. Once you create the building blocks, then you get to do more of the fun stuff.”
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Recession is Treasurers’ #1 Risk in 2023

A year of difference. At the start of 2022, treasurers ranked tightening labor markets as their companies’ top risk for the New Year. Twelve months later, the war in Ukraine, rising inflation and a hawkish Fed changed the outlook dramatically. The preliminary results of NeuGroup’s 2023 Finance & Treasury Agenda Survey point to the challenges ahead.

A year of difference. At the start of 2022, treasurers ranked tightening labor markets as their companies’ top risk for the new year. Twelve months later, the war in Ukraine, rising inflation and a hawkish Fed changed the outlook dramatically. The preliminary results of NeuGroup’s 2023 Finance & Treasury Agenda Survey point to the challenges ahead:

  • ​Going into 2023, treasurers cited a prolonged economic slowdown as their biggest concern. For treasurers, lower sales put higher pressure on working capital. Not surprisingly, treasurers selected providing liquidity to the business as their top objective for the year ahead.
  • The recession risk will persist through the end of 2023 or even beyond. Fifty-nine percent of treasurers predicted negative GDP growth will last through 2023, and 21% expect it to extend into 2024.
  • Worries about the labor market dropped to the No. 6 slot. Some of the country’s largest companies have already announced layoffs. Unfortunately, this risk perception also impacted treasury’s 2023 objectives, with talent development dropping to the bottom of the list.
  • While political and regulatory uncertainty ranked second in the list of risks, financial market volatility got more votes in the top-risk category, a testimony to the level of uncertainty about FX and interest rates and share prices. Last year, market volatility was the No. 5 risk.
  • The good news is that treasurers are not concerned about accessing external funding if needed. Very few cited constrained access to the debt markets as a significant risk.

By the numbers. The chart above represents the ranking of eight risk factors based on responses to NeuGroup’s 2023 Finance & Treasury Agenda Survey. The total score is captured by the length of each bar. The shading reflects the frequency by which the risk was selected on a weighted score basis. The darker the shade, the bigger the risk.

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Posts, Podcasts and Video: The Best NeuGroup Content of 2022

A curated collection of favorite NeuGroup Insights posts, videos and Strategic Finance Lab podcasts.

The NeuGroup Insights Newsletter this week flashes back on some of our best content of 2022. That includes popular and topical articles—some based on proprietary NeuGroup Peer Research survey data—as well as videos and—new this year—podcasts (the Strategic Finance Lab, available on Apple and Spotify).

  • To read the full email, please click here.

A curated collection of favorite NeuGroup Insights posts, videos and Strategic Finance Lab podcasts.

The NeuGroup Insights newsletter this week flashes back on some of our best content of 2022. That includes popular and topical articles—some based on proprietary NeuGroup Peer Research survey data—as well as videos and—new this year—podcasts (the Strategic Finance Lab, available on Apple and Spotify).

  • To read the full email, please click here.
  • The selections reflect the range of immediate challenges finance organizations faced in 2022—including tight labor markets, rising interest rates and FX volatility—as well as longer-term objectives like diversity and inclusion, digital transformation, ESG and making finance a true strategic partner of the business.
  • This week’s data showing inflation cooled in November and the Fed’s decision to raise rates less than previous hikes suggest that forecasting, planning and managing risk may not get any easier for finance organizations in 2023. And other complex, unpredictable topics covered in this batch of bests—the war in Europe and cryptocurrency, for example—show no signs of stabilizing or simplifying anytime soon.
  • One thing, though, is certain in the year ahead: NeuGroup’s commitment to producing more great content that taps into the wisdom, experience and insights of our members, sponsors and partners. That won’t change.

Sign up for the newsletter by clicking here.

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Cash Investment Managers Watch and Wait for the Fog to Clear

Many NeuGroup members are shortening duration and some are avoiding maturities beyond six months.

“This is the most uncertain time I’ve ever seen,” said a representative of Allspring Global Investments at the fall meeting of NeuGroup for Cash Investment 2, aptly capturing the sentiment of many members. Uncertainty and a sense that interest rates will keep rising despite fears of recession are among the reasons many of them are keeping average portfolio duration short amid the extreme inversion of the yield curve. They’re viewing cash as a useful asset and steering clear of longer-term investments that—for now—aren’t worth the extra risk.

  • This spring, a NeuGroup survey showed that 70% of members did not intend to extend duration. At the fall meeting sponsored by Allspring, a poll (results below) showed almost three-quarters are shortening duration and 55% are increasing the percentage of cash held in money market funds.

Many NeuGroup members are shortening duration and some are avoiding maturities beyond six months.

“This is the most uncertain time I’ve ever seen,” said a representative of Allspring Global Investments at the fall meeting of NeuGroup for Cash Investment 2, aptly capturing the sentiment of many members. Uncertainty and a sense that interest rates will keep rising despite fears of recession are among the reasons many of them are keeping average portfolio duration short amid the extreme inversion of the yield curve. They’re viewing cash as a useful asset and steering clear of longer-term investments that—for now—aren’t worth the extra risk.

  • This spring, a NeuGroup survey showed that 70% of members did not intend to extend duration. At the fall meeting sponsored by Allspring, a poll (results below) showed almost three-quarters are shortening duration and 55% are increasing the percentage of cash held in money market funds.
  • Jeffrey Herzog, managing director and portfolio manager at Lord Abbett, sponsor of the NeuGroup for Cash Investment 1 meeting, said, “What we’re seeing from our larger institutional investors is they’re finding a lot of value in shorter-term fixed income. The risk-adjusted returns are really compelling relative to everything else.”

Six-month maximum. As capital preservation and liquidity are of heightened importance in uncertain times, the consensus among members was that six-month maturities are as far out as they’re willing to go.

  • But one treasury director, who has had a one-to-three year short duration strategy since 2017, said he currently views even six months as “uninvestible,” which resonated with a number of his peers at the meeting.
  • “We only invest in [investment-grade] corporate bonds, so interest rate risk is the biggest driver,” he said. “With the amount of volatility that’s going on right now, if for some reason I need that cash quickly, I’m not worried about liquidity, I’m worried about being in a marked-to-market loss position all of a sudden.”

Safety in money market funds. As they keep duration short, members are mostly investing in high-quality, low-risk investments like bank deposits, government money market funds and commercial paper.

  • One investment manager said he’s used some demand deposit accounts, commercial paper and has a small corporate bond portfolio, but “we’re mostly sitting in the money market fund bucket.”
    • A colleague of his added that, with where rates are, “Management is like, ‘I’m earning 4% on MMFs, is it worth taking additional risk to get 4.25%?’”
    • Within that money market fund portfolio, the company exclusively invests in treasury and government funds. “When we looked into prime funds, the difference between government and prime just wasn’t attractive,” he said. “And it’s predominantly government because they have more repo.”
  • One member said his stance is to stick to government money market funds “until we see repeated inflation prints that are going in the right direction consistent with what Jerome Powell was saying on his last call. We’re not trying to be heroes here for any reason.”

Risk vs. reward. One manager willing to test the waters in a hunt for yield found promise in offshore prime funds, but most members are lying in wait until rate hikes and inflation slow down.

  • The member, a manager of capital markets at a US pharmaceutical company, said he found opportunities in offshore constant net asset value (CNAV) and low volatility net asset value (LVNAV) prime funds, which “have pretty decent yield.”
  • Another member, still playing it safe, added that his team is taking time to “posture ourselves” to be ready to strike once the market starts to stabilize. The team is “working on how we identify risk on a macro level,” to optimize allocation when the time comes.
  • The member who said he wouldn’t consider six-month investments currently is also planning for what comes next. “Our real goal is, once the Fed starts cutting, to go out further than we were before, four to five years,” he said.
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Handoff: Tips for Playing the Pension Risk Transfer Game

The improved funded status of pensions, thanks partly to higher interest rates, make PRTs a play worth considering.

The need for pension teams to foster strong partnerships with other groups, hire an experienced external advisor and, for some, find a separate, independent fiduciary to select insurance companies emerged as key takeaways from a presentation about pension risk transfer (PRT) transactions at a recent meeting of NeuGroup for Pensions and Benefits.

  • The complexity of PRTs makes it essential that the finance team responsible for the pension works closely and collaboratively with the communications (internal and external), HR and legal (ERISA counsel) teams.
  • An external advisor offers the corporate embarking on a PRT or partial PRT valuable advice around the entire process, including financial, legal and communications matters.
  • Takeaways from the session are especially relevant today, with higher interest rates boosting the funding levels of many companies’ defined benefit plans, a key consideration for finance teams contemplating PRTs and moving pension obligations off corporate balance sheets.

The improved funded status of pensions, thanks partly to higher interest rates, make PRTs a play worth considering.

The need for pension teams to foster strong partnerships with other groups, hire an experienced external advisor and, for some, find a separate, independent fiduciary to select insurance companies emerged as key takeaways from a presentation about pension risk transfer (PRT) transactions at a recent meeting of NeuGroup for Pensions and Benefits.

  • The complexity of PRTs makes it essential that the finance team responsible for the pension works closely and collaboratively with the communications (internal and external), HR and legal (ERISA counsel) teams.
  • An external advisor offers the corporate embarking on a PRT or partial PRT valuable advice around the entire process, including financial, legal and communications matters.
  • Takeaways from the session are especially relevant today, with higher interest rates boosting the funding levels of many companies’ defined benefit plans, a key consideration for finance teams contemplating PRTs and moving pension obligations off corporate balance sheets.

Picking insurers and plan participants. One revelation from the presentation for some members was the standard practice in large PRT transactions of hiring an independent fiduciary to select the insurance companies taking on the corporate’s pension obligations.

  • Transactions of this nature draw scrutiny from many stakeholders, some of it about the selection of the insurance companies. So most companies doing PRTs over $1 billion make the decision to hire an independent fiduciary to help them manage that part of the process.
  • Corporates that are not transferring all their pension liabilities in a PRT must decide which participant obligations go to an insurer and which stay with the company. Advisors help determine so-called benefit thresholds. One approach is to select participants with the lowest benefits to maximize the number of participants and thereby lower variable PBGC premiums corporates pay but insurers do not.
  • Another consideration in making the benefit threshold decision is maintaining the option of, at some point in the future, transferring the obligations of participants who remain in the corporate’s pension plan. That requires, among other steps, mortality analysis to ensure the remaining population will be attractive to insurers.

Difficulty and complexity. Companies contemplating the transfer of pension assets to an insurer should expect some potentially uncomfortable conversations with external asset managers. Especially difficult is telling managers who outperformed benchmarks that the corporate’s pension team is reducing or terminating their mandates, just weeks before a transaction is announced.

  • Once the assets are transferred (to a separate account), the challenge is coming to an agreement with the insurer on their value, another complex process where an advisor can play a key role.
  • A final takeaway from the session: PRT transactions are difficult and the challenge of doing them should not be underestimated. One word to the wise: companies that have the discipline early on to avoid making a PRT overly complex in the hopes of achieving perfection—however that is measured—usually have positive outcomes.
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Talking Shop: Interest Rates for In-House Banks

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].


Member question: “For those that use an in-house bank/cash center, can you share the interest rates you use on the excess funds loaned to the in-house bank?

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].


Member question: “For those that use an in-house bank/cash center, can you share the interest rates you use on the excess funds loaned to the in-house bank?

“Does the in-house bank/cash center pay the lending entity:

  1. “An overnight rate
  2. “A monthly interest rate
  3. “A rate that matches the rate on the investment made by the In-house bank with the loaned funds?”

Peer answer 1: “We pay an arm’s-length daily rate and have a spread differential between what we pay/charge for deposits/loans. It is a daily rate that compounds monthly on the structures run as cash pools and compounds at the end of the term on fixed-term structures.”

Peer answer 2: 
“From my past experience, the rate used was similar to the rate that an external banking partner would give to a corporate on its deposit account (money market deposit account or similar). This was to ensure commerciality in the IHB structure for tax purposes.”

Peer answer 3: “We set an arm’s-length monthly rate that is applied to loan balances.”

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Mastering Your Data

Data accessibility and availability is at the core of all finance technology transformation.

By Nilly Essaides

Many finance organizations are fast-tracking automation initiatives, aiming to improve process efficiency and build new capabilities to support an increasingly strategic role. The pressure to reduce process cost and head count is intensifying alongside concerns about a global recession.

  • “We are speeding up our digital transformation,” said a member of NeuGroup for Tech Treasurers at the annual meeting at Carmel Valley Ranch. “I just received my budget for treasury for next year, and it’s going to be flat,” she said. “Yet I am expected to do more. That’s speeding up our demand for automation.”

Data accessibility and availability is at the core of all finance technology transformation.

By Nilly Essaides

Many finance organizations are fast-tracking automation initiatives, aiming to improve process efficiency and build new capabilities to support an increasingly strategic role. The pressure to reduce process cost and head count is intensifying alongside concerns about a global recession.

  • “We are speeding up our digital transformation,” said a member of NeuGroup for Tech Treasurers at the annual meeting at Carmel Valley Ranch. “I just received my budget for treasury for next year, and it’s going to be flat,” she said. “Yet I am expected to do more. That’s speeding up our demand for automation.”
  • “In a tight labor market, automation is going to play a critical role,” said Tom Joyce, head of capital markets strategy at MUFG, which sponsored the meeting. “CapEx is overall going down, but the one place we see it holding up is in R&D and technology.”

Breaking data silos. New technologies can reduce cost and deliver new capabilities. However, absent access to enterprise-wide “blessed” data, they cannot produce the insights companies need to make financial and business decisions.

  • Finance is a huge consumer and producer of data, and even within the function it often stores information in disparate systems.
  • Barriers to the flow of data are even taller as finance increasingly needs insight into operational information. An October NeuGroup survey of 30 FP&A executives showed the majority have either adopted or are planning to adopt integrated business planning practices.
  • Meanwhile, treasury teams are frequently frustrated with the difficulty of pulling AP and AR information, as well as inventory in order to optimize working capital. “Working capital is an end-to-end process, and it makes sense for treasury to orchestrate it, although often it is not the process owner,” said one treasurer.

Building bridges. The good news is that technologies like robotic process automation (RPA) and APIs are facilitating the process of creating a data lake that includes different types of data, e.g., financial, customers, supplier and operational.

  • “What we need is a single source of the truth,” noted a member of NeuGroup for Mega-Cap Heads of FP&A. “Right now, data is dispersed throughout the organization.”
  • Another member said, “As part of our digital transformation project, we are building a data lake that will host enterprise data and support multiple applications.” The source systems feed that data lake via flexible “pipes” that can be easily reconfigured.
  • A third FP&A executive said, “We have over 500 robots that, among other activities, fetch data from different systems and push it into the data lake.” Planning, analytics tools or TMS “sit” above the lake, and pull the information they require.

Data governance. One source of data is only as good as the data within it. While IT has an important role to play, because finance uses and generates critical data, it often owns or influences data definitions and governance.

  • In a survey conducted at the start of 2022, 49% of treasurers reported that finance is piloting master data management (MDM) solutions. Seventeen percent said they have implemented MDM tools at scale. Looking forward 12-24 months, the pilot projects are destined to expand to full-scale adoption.
  • On the path toward a comprehensive view of data, “data governance is an essential step,” one FP&A executive said. A recent NeuGroup survey revealed that FP&A organizations at the highest level of maturity are 27% more likely to own MDM compared to peers.

Filtering out the noise. Having all data in one place can have one potential drawback: data overload. With so much information, how can finance ensure it pulls only relevant data points?

  • “Our company has a data lake,” said the treasurer of a large technology company, “so treasury and other functions can draw on the same data.” Finance relies on machine learning algorithms to curate and digest the information it requires, for example to improve the accuracy of the cash forecast.
  • “You need to understand the data in order to use it to make decisions; otherwise, it can be overwhelming,” said a member of NeuGroup for European Treasury at a recent meeting in Geneva.
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People, Prices, Places: Internal Auditors Question Hiring Trends

Internal audit hiring insights: India may be growing less attractive; recruiting talent from the Big Four has downsides.

Top companies in North America have looked to India as a leading location for shared services centers and to potentially place at least some internal audit (IA) staff. They have also used the Big Four accounting firms essentially as a default source of new team members. Both of those trends may be wearing thin.

  • One member of NeuGroup for Internal Audit Executives discussing his company’s rapid growth and accompanying challenges, noted the sky-high compensation packages in North America that prompted internal audit to look at its operations in India to locate some IA staff. Peers’ feedback, however, presented a more complicated picture.

Internal audit hiring insights: India may be growing less attractive; recruiting talent from the Big Four has downsides.

Top companies in North America have looked to India as a leading location for shared services centers and to potentially place at least some internal audit (IA) staff. They have also used the Big Four accounting firms essentially as a default source of new team members. Both of those trends may be wearing thin.

  • One member of NeuGroup for Internal Audit Executives discussing his company’s rapid growth and accompanying challenges, noted the sky-high compensation packages in North America that prompted internal audit to look at its operations in India to locate some IA staff. Peers’ feedback, however, presented a more complicated picture.
  • Tapping the Big Four as a key source of new hires also generated a range of views, with some members saying the gigantic, global firms often produce a check-the-box mentality.

India issues. One member said his company’s “P75” compensation philosophy—limiting compensation to the 75th percentile in a specific market—has prompted the need to locate IA staff outside North America, where talent is scarce and compensation through the roof. The company already has a significant shared services center in India and a recent acquisition will double the number of employees there, so stationing some IA there makes sense. But it’s not without complications.

  • Many tech companies in India require employees to give them 90 days’ notice when resigning. That extended period creates a risk for NeuGroup members recruiting those employees, giving competitors time to snatch the new hire.
    • “It’s not surprising to see rivals offering 60% to 100% increases compared to our company’s offers,” the member said.
  • Another member added that turnover is every two or three years, as employees look for higher compensation elsewhere, and the compensation cost is rising 20% to 25% for each new hire.
    • “There’s the initial entry cost, but there are latent costs your company will have to pay down the road,” he said.
  • The member who prompted the discussion has noticed, at least initially, that while prospective IA hires in India have strong technical skills, some at senior levels lack presentation or soft skills, making it “challenging to put them in front of a global team.”
  • One member offered this warning about going the India route: “Once you give up head count in the US, you’ll never get it back.”

Big Four qualms. The Big Four accounting firms have long been a source of talent for corporate IA, especially in the age of remote work, when the extensive training they provide employees is highly valued. However, one member, apologizing first to peers who likely started out at a Big Four firm, recalled the chief auditor from a major payments company telling him never to hire from the Big Four “because as an external auditor [they often do] a check-the-box type of audit.”

  • A peer noted his own lack of formal auditor training, such as a CPA certification, and said that he prioritizes interviews to ascertain whether candidates have a risk mindset, since hires can be taught to be an auditor if they are naturally curious, good observers and willing to ask the right questions.
    • “I don’t really consider whether they’re from a Big Four or not,” he said.
  • While one member frowned on the Big Four’s strict, process-driven approach, others said it was good as long as it is balanced with real-world perspective.
    • “I need the Big Four mentality to bring discipline, but I also need auditors with business backgrounds to say, ‘Yeah, that’s great, but it’s not how the real world works,’” one said. “IA should have a blend.”

The importance of presentation. Members also noted presentation and communications as important skills in the context of Big Four hiring. A member said he valued job candidates from the Big Four less for their intellectual curiosity and more for their ability to communicate to external stakeholders.

  • “I think we undervalue that,” he said. “For me, it’s that ability to communicate with the stakeholder who often times doesn’t want you there.”
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