Commentary: Why should investors care about treasury management?

Treasury management is now strategic.

The entire investment stakeholder landscape, from pension funds and endowments to the investment managers they select, even portfolio allocation and asset class investment, is affected by cash management, liquidity and financing. Treasury management, until recently, was relegated to a series of "tasks." As active cash management becomes the norm, treasury has now migrated to a strategic, front-end, return-on-investment capability in a firm. This is true for traditional asset managers, or for hedge funds and private equity.

Simply put: If a firm does not know how much cash it has, the entire enterprise is at risk. Until recently, that was as far as treasury went. However, owing to technology capability (most especially cloud-based software as a service), unencumbered cash positions can now be known. That cash can be put to use on behalf of end investors and the plan sponsors that serve them. In addition, dashboard delivery and powerful analytics serve as valuable tools for the C-suite and across all accounting functions.

For these reasons, pension funds — which of course are not involved in the management of the investment firms hired — may want to be educated and ask questions regarding how treasury is being managed in their investments to determine if cash investment opportunities are being missed.

Across the board, active treasury management is increasingly becoming the norm. For example, pension funds are taking more control and pulling investing activities in-house and cash management is a big piece. This trend, which began in the hedge fund space, has migrated to private equity firms, as they have become aware of the full range of ideas and issues in their portfolio companies — and up the chain into the plan sponsors themselves.

Current manual operations do not deliver the breadth or depth of electronic capability, and apart from the comparative inefficiencies, manual processing has become legacy, not serving firms well in either the near or long term. A critical concern is the relative sophistication of the information and software being deployed by managers as they seek to migrate to the newer model — which is cloud-based SaaS (as opposed to spreadsheet/manually-based) — and which embeds "tasks" into the software itself. Reliance on Microsoft Excel-based solutions increases the error risk profile, and is costly in terms of time and people resources. Moreover, a technology based treasury solution generates a far greater range of information and analytics (such as auditable operational controls), actually reporting "unencumbered" cash. For managers, this kind of analytics and information, delivered via technology, migrates treasury from an operations focus to a C-suite one. This ability to access analytics and information, combined with the reduction of time, error and resources, is especially important in today's atomized, remote work environment.

Until recently, treasury operations have been a series of error prone, clunky, and manual administrative task processes predominately run on spreadsheets. Transitioning to an electronic environment doesn't merely increase processing speed, or reduce error risk, or centralize remote workflow. Electronic solutions reposition treasury itself as a strategic opportunity, providing information that enables managers (and, by extension, the firms) to consistently make better decisions. For example, CFOs can decide daily how to generate ROI from the unencumbered cash, or financing strategy based on neutral, unconflicted rates.

For the entire investment chain, the role of treasury is now one that can be harnessed for the benefit of each participant.

Given the unpredictability of the current environment, what was once "possible" for firms has now become "necessary."

Sameer Shalaby is the CEO of Hazeltree Fund Services. He is based in New York. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I's editorial team.