Cash management in times of crisis: Investments without price risk sought
Kleinmachnow, 10 March 2022 – The Ukraine crisis is shaking up the markets. Even short-term bonds are fluctuating unusually. “Cash management for municipalities and companies alike is becoming increasingly challenging as a result,” says EDS founder and CEO Sebastian Bergmann. “Few investments are spared the price risks.”
As a rule, liquidity disposition is changed in times of crisis towards even shorter maturities. “That’s what we’re seeing at the moment, with alternative investment options in particular being in high demand,” says Bergmann. This is mainly due to the fact that even short-dated bonds are subject to an increased risk of price changes in view of the events in Ukraine. “The risk measures for liquidity are often already exhausted as a result, making cash management in the treasury more complex.”
This is because alternative positions that have the lowest possible price risk must then be taken alongside the standard products. “This includes, for example, the investment area of private debt,” says Bergmann. The challenge here is often compliance with matching maturities. “Not all alternatives can be closed out within times that are necessary for a treasury,” says Bergmann.
And although interest rates are rising or the central banks have at least announced this, treasurers still have to accept negative interest rates for their liquidity. “Currently, institutional investors’ balances are earning interest at -0.5 per cent or worse,” says Bergmann. In addition, not everyone can invest freely in alternatives; often investment guidelines or regulatory restrictions stand in the way.
“Municipal loans, for example, which are issued via a fund and pooled in this way, are better suited,” says Bergmann. They are not insolvent and have first-class credit ratings like the federal states and the FRG. “Pooled lending to LAs is optimal both in terms of ratings and volatility,” says Bergmann. “In addition, there are no currency risks when lending in the euro area, so overall it is a low-risk investment that is an excellent fit for a treasury.”