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Touched Less, Not Touchless: Bringing Automation to Life

Finding key parts of processes to automate can make automation more achievable than end-to-end automation.

AI chatbots like ChatGPT and Google’s Bard may conjure up a limitless future of so-called touchless, automated processes that require no human intervention. But for corporates limited by the budgets and sizes of IT teams, end-to-end process automation is often an unrealistic goal. So some NeuGroup members are embracing “touched less” solutions—adopting a mindset that can go a long way toward making automation more achievable.

  • At a recent session of NeuGroup for Technology Advancement, an IT project manager at a private company who works with finance teams discussed how he conceptualizes and implements automation through this lens.
  • “If you look at a business process holistically, end-to-end, we can start picking out parts down to the individual process that can be touched less—that’s how we’re deploying, and that’s how automation comes to life,” he said.

Finding key parts of processes to automate can make automation more achievable than end-to-end automation.

AI chatbots like ChatGPT and Google’s Bard may conjure up a limitless future of so-called touchless, automated processes that require no human intervention. But for corporates limited by the budgets and sizes of IT teams, end-to-end process automation is often an unrealistic goal. So some NeuGroup members are embracing “touched less” solutions—adopting a mindset that can go a long way toward making automation more achievable.

  • At a recent session of NeuGroup for Technology Advancement, an IT project manager at a private company who works with finance teams discussed how he conceptualizes and implements automation through this lens.
  • “If you look at a business process holistically, end-to-end, we can start picking out parts down to the individual process that can be touched less—that’s how we’re deploying, and that’s how automation comes to life,” he said.

Success story. The project manager walked through a recent automation the company implemented to improve purchases by the procurement team, saving hours of research time and improving decision-making.

  • For example, the solution, which he calls an “AI-lite” engine, can accept a purchase request for a specific type of pencil. The engine analyzes the entire history of purchases of that kind of pencil that the company’s ever made and recommends the optimal retailer or supplier.
  • While a “dream-state” automation tool might see the need for this type of pencil and make the purchase on its own, the additional steps would far prolong the design and development stages.
  • Instead, the process is now touched less, as the procurement team member simply inputs the specific need and receives a recommendation they can use to save time and money.

Holistic design. One member advised that when implementing automation solutions, it’s important to think holistically about current processes that may span multiple departments. Doing so allows practitioners and technologists to zero in on designing the best practical application; though it may prolong the design process, it will ensure a more useful final product.

  • Indeed, the IT project manager said internal clients often come to him imagining a new touchless process, but after considering the entire business workflow and how to address its pain points, a “touched less” solution is often what emerges.
  • To arrive at that solution, the project manager first must understand the entire business process and where automation and technology can result in meaningful change, an approach he calls “design thinking.” From there, his team develops solutions that can be implemented and built upon.

Making your case. Finance teams hoping to adopt either “touched less” or touchless automation can’t lose sight of the need to prove that the effort will pay off. “For tech resources, which are very expensive, to work on big projects we need to understand the P&L impact—it could be related to things like revenue or FTE hours saved,” another member said. “If it’s a small impact, we say they should layer that into another request.”

  • NeuGroup’s Kelly McClelland, who ran the session, encouraged members to step up and ask for what they need to make transformation a reality. “Technical resources might not always be where we need them to be,” she said. “Have an argument ready that an automation, however small, is going to save the organization a lot of money—you just have to build the business case.”
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Ray of Hope: Cyber Catastrophe Bonds May Boost Insurer Capacity

The first cyber cat bond could spell some relief for corporates navigating a hard market for cyber insurance.

Corporate treasurers and risk managers whose companies face ever-increasing cyber risk may soon have a new tool to discuss with brokers and insurers as they build insurance towers and navigate the hard, capacity-strained market for cyber coverage: catastrophe bonds.

  • Last month, U.K. insurer Beazley sold $45 million in cyber cat bonds, the first deal of its kind—following more than a decade of discussion about the product in the insurance-linked securities (ILS) market. The Beazley cat bond will pay out if the insurer exceeds $300 million in losses from cyberattack claims.

The first cyber cat bond could spell some relief for corporates navigating a hard market for cyber insurance.

Corporate treasurers and risk managers whose companies face ever-increasing cyber risk may soon have a new tool to discuss with brokers and insurers as they build insurance towers and navigate the hard, capacity-strained market for cyber coverage: catastrophe bonds.

  • Last month, U.K. insurer Beazley sold $45 million in cyber cat bonds, the first deal of its kind—following more than a decade of discussion about the product in the insurance-linked securities (ILS) market. The Beazley cat bond will pay out if the insurer exceeds $300 million in losses from cyberattack claims.
  • Cat bond issuers pay interest to institutional investors who purchase the bonds; the investors end up paying out the principal set aside in a trust to the issuer only if indemnity or other loss triggers are set off by a specified type of storm, cyberattack or other catastrophic event.

More to come? The Beazley deal should fuel consideration of similar transactions to mitigate growing cyber risks that insurers worry pose a systemic threat, resulting in greater capacity to meet the needs of corporates, according to Peter Foster, chairman of WTW’s Global FINEX Cyber business.

  • He said cyber insurers will most likely be the biggest issuers of cyber cat bonds, but corporates could also issue the securities to reduce loss reserving and free up capital.
  • “Corporates could consider their own cat bond to provide greater capacity of cyber insurance projection,” Mr. Foster said.
  • Another industry observer told NeuGroup Insights, “The bond solution will only be there for the very largest clients in the market—or maybe client groups.”

Corporates no strangers to cats. Cat bonds are well established in the property and casualty market, where they have mostly been issued by insurers and reinsurers seeking to transfer risk to investors who are looking for returns uncorrelated with financial investments, including pension funds.

  • Some corporates looking for protection from natural disasters have also taken advantage of the market for cat bonds in recent years.
  • A corporate “maxes out coverage from the traditional insurance market, then goes to the cat bond market,” said John Seo, co-founder and managing director of Fermat Capital Management, an investor in the Beazley deal. He cited corporates that have increased coverage of earthquake risk:
    • Google and its parent Alphabet purchased $275.5 million of California earthquake risk protection in 2021 following two similar deals the year before.
    • Also in 2021, Kaiser Permanente renewed and increased the size of its cat bond providing earthquake protection.
  • “Even if the amount of cat bond coverage procured is modest, the impact on the traditional program can be significant,” Mr. Seo said.

Risk model concerns. Cyber cat bonds have long been discussed by ILS-market participants but concerns about the ability to accurately model cyber risk stalled potential transactions. The Beazley deal was privately placed by Gallagher Securities, the ILS arm of reinsurer Gallagher Re, and is tradeable under Rule 144A among institutional investors.

  • It uses the cyber risk model developed by CyberCube, which Mr. Seo said is becoming the “industry standard for cyber risk transfer” and a model Fermat used.
  • Another broker specializing in ILS, Aon Securities, also anticipates completing a cyber cat bond this year, according to CEO Paul Schultz, who has publicly credited maturing investor education and risk models for cyber cat deals finally coming to market.
  • More traditional risk model providers such as RMS, acquired by Moody’s Investors Service in September 2021, have ramped up their cyber offerings. Jin Shah, managing director, capital markets and resilience, said RMS’s cyber model is already widely used by the insurance industry, and his firm has spent significant time educating investors how it works.

Reality check. Fred Barnachawy, managing director and CIO at DeshCap, which negotiates contracts and insurance payouts on behalf of insured clients, said that property risk is easier to model and contacts are fairly standard compared to those covering cyber risk. Plus, he said, property does not carry the liability risk that often emerges in the wake of cyberattacks.

  • Mr. Barnachawy cautioned that the terms and conditions of early cyber cat deals are likely to be “constrained” and payouts limited, even after significant cyber events.
  • “Cyber cat bonds may help with the capacity issue, but will it help with core protection?” he asked.
  • What is clear, though, is the need for more coverage, capacity and innovation in cyber coverage. The National Association of Insurance Commissioners reported that 2021 data breaches increased 68% over the prior year. But despite trillions in estimated cyber losses, commercial premiums written totaled a relatively paltry $6.5 billion.
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Investing in Diversity: D&I Performance Metrics in Action

A NeuGroup survey shows treasury prioritizes risk management and performance against a benchmark when evaluating diverse-owned firms.

Eighty-six percent of respondents to NeuGroup’s D&I Financing and Asset Management Survey do not have a formal D&I policy, but 54% work within informal guidelines. Regardless of approach, the overall investment policy requires that treasury apply performance metrics when it selects external managers for investment of cash and evaluates their success over time.

A NeuGroup survey shows treasury prioritizes risk management and performance against a benchmark when evaluating diverse-owned firms.

Eighty-six percent of respondents to NeuGroup’s D&I Financing and Asset Management Survey do not have a formal D&I policy, but 54% work within informal guidelines. Regardless of approach, the overall investment policy requires that treasury apply performance metrics when it selects external managers for investment of cash and evaluates their success over time.

  • The survey reveals treasury applies the same performance measures to diverse-owned investment managers as it does to their peers.
  • “We hold them to the same metrics, all the way from performance to timely reporting and quarterly market updates,” said one cash investment manager.

The chart above shows the relative importance of metrics treasury uses to assess return on cash invested by minority-owned managers. It reveals treasury is consistent in its approach. Given the conservative nature of cash investments, risk management and compliance with guidelines, and performance against the benchmark, are tied for the number-one spot, followed by performance against managers with a similar mandate.

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Funding Growth-Tech During a Downturn: A Tech Banker’s Insights

Bank of the West’s Andreas Bubenzer-Paim on markets, ChatGPT and bankers helping tech firms weather recessions.

The collapse of the IPO market in 2022 is just one factor weighing on growth-tech firms that need financing as they prepare for a possible economic downturn while watching many mega-cap tech companies eliminate jobs. That’s the backdrop for this timely Strategic Finance Lab podcast conversation with Andreas Bubenzer-Paim, managing director and head of technology banking at Bank of the West. You can listen to it now by heading to Apple or Spotify.

  • Mr. Bubenzer-Paim shares his insights with NeuGroup’s Antony Michels on the outlook for growth-tech firms, cryptocurrency, space technology and how tech companies can forge stronger ties with banks—and what they should expect from those banks during good times and, more importantly perhaps, when the going gets tough.

Bank of the West’s Andreas Bubenzer-Paim on markets, ChatGPT and bankers helping tech firms weather recessions.

The collapse of the IPO market in 2022 is just one factor weighing on growth-tech firms that need financing as they prepare for a possible economic downturn while watching many mega-cap tech companies eliminate jobs. That’s the backdrop for this timely Strategic Finance Lab podcast conversation with Andreas Bubenzer-Paim, managing director and head of technology banking at Bank of the West. You can listen to it now by heading to Apple or Spotify

  • Mr. Bubenzer-Paim shares his insights with NeuGroup’s Antony Michels on the outlook for growth-tech firms, cryptocurrency, space technology and how tech companies can forge stronger ties with banks—and what they should expect from those banks during good times and, more importantly perhaps, when the going gets tough.

Mr. Bubenzer-Paim, seen above with NeuGroup CEO and founder Joseph Neu at the fall meeting of NeuGroup for Growth-Tech Treasurers sponsored by Bank of the West, also gives his take on ChatGTP and artificial intelligence.

  • The interview took place before Microsoft announced it would integrate ChatGPT technology into its Bing search engine and Google’s event on Wednesday to promote its new AI chatbot called Bard.
  • Those developments dovetail nicely with what Mr. Bubenzer-Paim says about ChatGPT: “It’s certainly a milestone development. It’s still a very specialized tool, it’s built to fulfill a very specific purpose. I think those kind of AI [tools] are bound to be successful.”
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Talking Shop: Do You Pay All Joint Lead Arrangers of Revolvers?

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 three joint leader arrangers (JLAs) for our revolving credit facility and the JLA that drives the revolver renewal gets paid more than the others.

  • “There are some companies with a lot more than three JLAs. If we were to grow the top tier/JLA group, would the market standard be that they all get paid an arranger fee and, if yes, how would it compare to the lead JLA?
  • “Or do some corporates name banks as a JLA but don’t necessarily pay all of them a separate fee?”

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 three joint leader arrangers (JLAs) for our revolving credit facility and the JLA that drives the revolver renewal gets paid more than the others.

  • “There are some companies with a lot more than three JLAs. If we were to grow the top tier/JLA group, would the market standard be that they all get paid an arranger fee and, if yes, how would it compare to the lead JLA?
  • “Or do some corporates name banks as a JLA but don’t necessarily pay all of them a separate fee?”

Peer answer 1: “For our syndicated credit facilities, the only banks getting paid any extra fees are the five JLAs, one left lead and four passive lead arrangers.

  • “The four passive JLAs each get the same fee, which is one-third of the fee for the left lead arranger. All JLAs commit at the lead level, which is sized such that it provides 50% of total commitments.“

Peer answer 2: “I recently asked myself the same thing. We were doing an institutional deal back then, not bank debt. I paid fees to our two JLAs equally (despite only one really doing the work), plus an incentive kicker to the top left JLA for achieving a certain spread reduction and/or OID tightening vs. original pricing talks. Then co-managers had a title only, they did not get any fees.

  • “This went down ok with the syndicate, but we had prior context on this transaction. In an upcoming large deal, I will likely go back to giving out small fees to another tier below JLA.”

Peer answer 3: “We pay arranger fees to each JLA. All of them are in the top tier of our facility. The lead left and lead right JLAs get paid more than the others.”

Peer answer 4: “We’ve typically had two active leads (right and left) who get an arrangement fee. We also have a group of JLAs who get a smaller arrangement fee.”

Big picture: For more context and perspective on the question, NeuGroup Insights reached out to the head of a syndicated loan business at a major domestic bank. Here’s his response:

  • “In the past, there were a few instances where a bank would commit largely to get the JLA title. They would receive little or no separate JLA compensation but get credit on the league tables as a bookrunner.
  • “Recently, however, largely due to capital constraints facing banks across the industry, there has been much more focus on the returns of banks’ loan commitments. As such, JLA compensation is now present in nearly all transactions.
  • “When there are multiple JLAs, it is the norm that each of the banks will receive JLA compensation. Though if there are two tiers—which is common in large, syndicated loans for Fortune 100 companies—the second tier receives a slightly lower amount.”
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Reaching Out: Treasury Leads Engagement With Diverse-owned Firms

NeuGroup research reveals treasury is the primary driver of greater engagement with minority-owned banks, brokers and asset managers. 

As chief procurer of financial services, treasury is at the epicenter of a complex ecosystem of financial partners, from banks to brokers to pension and cash investment managers. According to NeuGroup’s D&I Financing and Asset Management Survey, treasury is not only seeking greater engagement with minority-owned firms but is the driving force behind companies’ efforts to build more expansive financial relationships with these firms.

NeuGroup research reveals treasury is the primary driver of greater engagement with minority-owned banks, brokers and asset managers. 

As chief procurer of financial services, treasury is at the epicenter of a complex ecosystem of financial partners, from banks to brokers to pension and cash investment managers. According to NeuGroup’s D&I Financing and Asset Management Survey, treasury is not only seeking greater engagement with minority-owned firms but is the driving force behind companies’ efforts to build more expansive financial relationships with these firms. 

A bigger share of wallet. Treasurers hold the purse strings and are increasingly sharing their wallets with diverse-owned firms. According to the survey, conducted in partnership with the National Association of Securities Professionals (NASP), Sustainable Fitch and Fitch Ratings: 

  • 25% of respondents expect to invest as much as 50% to 75% of short-term cash with diverse firms, vs. the current ceiling of under 40%.
  • 50% of respondents plan to invest 21% to 30% of strategic cash via minority-owned firms, up from 25% currently. 
  • 50% of respondents intend to allocate between 5% and 10% of pension assets to minority-owned firms, up from 33% currently.
  • 13% of respondents expect to increase underwriting commitments to diverse-owned firms to between 11% and 20%. Currently, the top allocation level is 5% to 10%.
  • 50% of respondents expect to spend 5% to 10% of fees with diverse-owned firms, up from 33% currently. 

A grassroots effort. The drive to increase engagement with diversity firms is coming from within. Ninety-two percent of survey respondents reported they are not experiencing any pressure from the board. Survey data shows that only 50% of CFOs are highly engaged. 

  • “While many CFOs are supportive, treasurers are more connected to the financial market ecosystem,” said Mike Simonton, who is on the Global DEI Advisory Committee at Sustainable Fitch. “Because they have external lens, they can see the importance of this issue and are moving forward.” 
  • “The CFO is not knocking at our door to include diverse firms in our debt underwriting and investment activities,” explained one survey respondent. While treasury maintains a direct communication line to the CFO, “it’s not like he’s actively asking us how things are going.”
  • “The treasury group is pushing up versus responding to a top-down mandate,” added an investment manager at another member company. According to her, treasury is ahead of other corporate functions, such as procurement, in diversifying its vendor base. “We are proactively communicating what we are doing in this space in order to motivate others to take similar steps,” she said.
  • “It’s more of an organically driven process,” agreed a member from a tech company that issued debt recently and included minority-owned brokers. “We have a whole impact team that’s committed to social goals and green initiatives.”
  • The same goes for working with external investment advisors. “It’s us pushing them,” said a respondent, in a follow-up focus group. “Consultants and advisors are not adamant about adding diverse-owned firms to our portfolio.” He added, “We require our advisors to include at least one diverse firm in their RFPs.” 

Getting the CFO on board. While treasurers have been pushing forward with remarkable success, a highly involved CFO is a feature in the profile of a successful treasury effort to expand engagement with diversity firms. When the CFO is a strong partner, treasury is more likely to have:

  1. A formal D&I policy that governs its work with minority-owned firms.
  2. A policy that has been in place for over two years.
  3. Investment advisors who are required to include diverse-owned firms in their proposals.

Key takeaway. For treasurers, this is a call for action: To move up the maturity curve, they should advocate for their programs by demonstrating success through financial KPIs that show the business benefits of expanding the diversity of financial partners.

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Tech in the Spotlight: The Outlook for Financing Growth in 2023

Capital markets insights from Bank of the West Head of Technology Banking Andreas Bubenzer-Paim.

If you only read the headlines, you might think that every technology company in the world is cutting jobs. But Andreas Bubenzer-Paim, Managing Director and Head of Technology Banking at Bank of the West, knows that layoffs by giants like Alphabet, Microsoft, IBM and other mega-caps are only part of a tech sector landscape which includes thousands of smaller, high-growth tech firms—many still private—that are actively hiring, not firing, workers.

  • “There is definitely a difference between the headline news and what I’m seeing in our daily lives when we talk to these tech companies and the management teams,” Mr. Bubenzer-Paim said in a recent interview. “And the message that you hear is they’re still hiring; they’re still growing.”
  • He’s quick to point out that hiring and growth at these companies will be at slower rates as recessionary conditions take hold. But whatever the pace of expansion, it’s critical for growth-tech firms to secure funding to stay on an upward trajectory. And volatility in financial markets that started in 2022 has made that harder.
  • In the video clip below—taken from a longer, Strategic Finance Lab Podcast to be released soon—Mr. Bubenzer-Paim shares his perspective and informed insights on the financing outlook in various capital markets for growth tech companies this year.

Capital markets insights from Bank of the West Head of Technology Banking Andreas Bubenzer-Paim.

If you only read the headlines, you might think that every technology company in the world is cutting jobs. But Andreas Bubenzer-Paim, Managing Director and Head of Technology Banking at Bank of the West, knows that layoffs by giants like Alphabet, Microsoft, IBM and other mega-caps are only part of a tech sector landscape which includes thousands of smaller, high-growth tech firms—many still private—that are actively hiring, not firing, workers.

  • “There is definitely a difference between the headline news and what I’m seeing in our daily lives when we talk to these tech companies and the management teams,” Mr. Bubenzer-Paim said in a recent interview. “And the message that you hear is they’re still hiring; they’re still growing.”
  • He’s quick to point out that hiring and growth at these companies will be at slower rates as recessionary conditions take hold. But whatever the pace of expansion, it’s critical for growth-tech firms to secure funding to stay on an upward trajectory. And volatility in financial markets that started in 2022 has made that harder. 
  • In the video clip below—taken from a longer, Strategic Finance Lab Podcast to be released soon—Mr. Bubenzer-Paim shares his perspective and informed insights on the financing outlook in various capital markets for growth tech companies this year.
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Cash Leadership Councils: Leading the Charge to a Cash Culture

Finance leaders and business heads collaborate on improving working capital management.

“Working capital is going to be a major challenge in 2023,” a member of NeuGroup for Global Cash and Banking said recently to kick off a session taking place as rising recession fears intensify the pressure on treasury to free up cash. The member is not alone: working capital optimization ranked as a top-five priority for treasurers in NeuGroup’s 2023 Finance & Treasury Agenda Survey​.

Finance leaders and business heads collaborate on improving working capital management.

“Working capital is going to be a major challenge in 2023,” a member of NeuGroup for Global Cash and Banking said recently to kick off a session taking place as rising recession fears intensify the pressure on treasury to free up cash. The member is not alone: working capital optimization ranked as a top-five priority for treasurers in NeuGroup’s 2023 Finance & Treasury Agenda Survey​.

  • To improve working capital management, members at this session and others held by NeuGroups for Growth-Tech Treasurers and European Treasury said their companies have created cash leadership councils—led by treasury—to identify opportunities to create a culture of cash in which free cash flow is prioritized over profit margins.
  • The councils bring together members of a company’s finance leadership, including the treasurer, CFO, the head of FP&A and business representatives from outside of finance. Most meet quarterly. 
  • The councils implement projects that improve a company’s working capital management, such as supply chain financing programs, and are seen as universally successful by the members who have had them in place for years.

Getting buy-in. One assistant treasurer at a healthcare company that started a cash council last year said it sprang from a working capital team within treasury.

  • “In order to implement supply chain finance or an AR factory, you need business buy-in,” he said. “The purpose of the [working capital] team was to identify project-related opportunities.” One problem: the time it takes to get buy-in from executive leadership to implement projects that may require a reallocation or reprioritization of resources.
  • Now, the working capital team can have this conversation immediately, as the company’s controller, CFO and head of FP&A join the quarterly cash council meetings. 
  • In just the last 12 months, the meetings have driven investments in forecasting, improving payment terms with suppliers using supply chain finance programs and accounts receivable factoring.
  • Another member said he is very interested in replicating this member’s approach. “It’s so important to get the operational finance guys in the room too,” he added. “They’re the ones living the customer relationships, and they know how to manage inventory.”
  • One member added that meeting with operational functions outside finance could help eliminate one of his primary working capital challenges: treasury employees that lack true understanding of how the business operates. “It can be super hard for a treasury person to discuss working capital if they don’t understand how the business works,” he said.

An additional treasury deliverable. Other members at the session had similar stories of cash excellence councils growing from internal treasury initiatives. One treasury director at an advertising firm had a mandate to not only encourage a cash culture, but directly incentivize free cash flow—backed up by the CEO.

  • “We wanted to tie free cash flow to compensation—but how do you do that at the enterprise level where you’ve got very large divisions, each one having very different working capital needs, with decisions that affect cash flow differently?” he asked.
  • The treasury team looked at the company’s overall cash flow and figured out how to adjust each business unit’s working capital so it could directly tie successes to individual business units.
    • “And we stripped out the things they can’t control, taxes and treasury-related stuff,” the director said. “So, it became an incentive for each business unit, aligned with results that directly explained the performance of the business unit to the entire team, focusing only on what’s controllable.”
  • The member said that both the CFO and CEO took interest in the program, and their buy-in resulted in smooth sailing. “It got lots of traction very quickly, and now it’s a regular component of the deliverables treasury puts together every quarter.”
    • “Buy-in from CEOs is often explicit because the trend is to have compensation metrics tied to working capital or cash flow and that only happens if business heads and the CEO agree with the CFO,” said NeuGroup senior executive advisor Paul Dalle Molle, who co-led the session. “These KPIs emanate from the work of the cash councils, usually after several years of development.”
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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 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 86% of treasuries do not have a formal policy to govern engagement with diversity firms, but a majority (54%) 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 86% of treasuries do not have a formal policy to govern engagement with diversity firms, but a majority (54%) 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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