LIQUIDITY SURVEY REPORT - 2020 AFP - Invesco
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2020 AFP® LIQUIDITY SURVEY REPORT Underwritten by Comprehensive Results This marketing document is exclusively for Professional Clients, Qualified Investors and Qualified Clients/Sophisticated Investors only (as defined in the important information at the end). It is not for consumer use, please do not redistribute
TABLE OF CONTENTS KEY TAKEAWAYS............................................................................................................ 4 INTRODUCTION............................................................................................................... 5 CASH AND SHORT-TERM INVESTMENTS/SECURITIES....................................... 6 INVESTMENT POLICIES.................................................................................................11 CURRENT ALLOCATIONS............................................................................................18 MONEY MARKET FUNDS ........................................................................................... 27 LIBOR TRANSITION...................................................................................................... 33 CONCLUSION.................................................................................................................. 35 ABOUT SURVEY PARTICIPANTS...............................................................................36 2020 AFP® Liquidity Survey Report | www.AFPonline.org 2
Dear Corporate Practitioner/Financial Professional:
Invesco is proud to partner with the AFP and sponsor the 2020 AFP® Liquidity Survey. This year’s
survey marks the 15th annual exploration of trends affecting financial professionals’ cash management
practices. It is an interesting time in our history as the COVID-19 global pandemic has effectively shut
down the world economy as companies and individuals currently try to understand the real impact
to their respective businesses and lives. We have seen quick and extensive action by the U.S. Federal
Reserve and U.S. Treasury. The U.S. Government has implemented numerous fiscal programs to
support households and businesses.
Over a two-month period during March and April 2020, investors turned to cash and pumped over
$1 trillion in assets into U.S. money market funds. The industry also saw inflows into government
money funds at unprecedented levels and, to a smaller degree, offshore funds witnessed an increase
in AUM during this same period.
The decisive and unprecedented actions of global central banks have been very supportive in
restoring market functioning for higher quality assets, acknowledging that there remains stress in
certain industries and sectors. We believe focus could shift to longer-term stimulus and support for
a broader economic recovery as local, regional and national entities attempt to reestablish the “new
normal” in our post-COVID-19 world. Liquidity and cash management has taken on a heightened level
of importance in the face of uncertainty.
At the time this survey was conducted (March 2020), the full impact of the global COVID-19 pandemic
had yet not been realized. However, in our view, the consistency of the findings in this annual
survey also highlights the heightened importance of reliable practices and planning in uncertain
environments. Notably, safety and liquidity consistently outweigh yield when financial professionals
are asked about the importance of investment objectives.
I hope you find the 2020 AFP® Liquidity Survey insightful as you plan your priorities for the coming
year. We look forward to partnering with you to support your efforts. And most importantly, we hope
in these times, you and your loved ones are safe and healthy.
Sincerely,
Laurie Brignac
CIO, Global Liquidity, Invesco
2020 AFP® Liquidity Survey Report | www.AFPonline.org 3
KEY TAKEAWAYS
The share of companies holding their short-
term investments in banks increased slightly
to 51 percent, up from the 46 percent
reported in 2019 and 49 percent in 2018,
reflecting increased bank utilization due to
concerns over the economy and possibly
The percentage of companies
in response to the pandemic. The overall
with written investment
relationship with a banking partner is the
policies has declined, even
main driver in bank selection.
at a time when policies and
procedures are paramount in
mitigating risk through the
COVID-19 pandemic.
Safety continues to
be the most-valued
short-term investment
objective for 62 percent
ESG has not caught on in of organizations,
operating cash: only 18 percent slightly lower than the
of respondents consider ESG 64 percent reported
investment parameters when last year. Liquidity 52 percent of offshore cash is in U.S.
managing operating cash, 68 timing is more dollars and in bank products, mirroring
percent do not consider ESG important than ever. a domestic approach to investing.
and 14 percent are unsure
about taking ESG parameters
into account.
2020 AFP® Liquidity Survey Report | www.AFPonline.org 4
INTRODUCTION
This—the 15th AFP Liquidity Survey—was
conducted in March 2020. During that time, the
COVID-19 virus was just beginning to impact the
U.S. After China was first to be hit by the virus
in late 2019, the disease made its way through
Europe and then arrived in the U.S., infecting and
killing thousands. Leaders and decision makers
in governments around the world realized the
only way to “flatten the curve” of the virus and
ease pressure on overwhelmed health systems
was to implement lockdowns and mandate social
distancing. In addition, the Federal Reserve lowered
its target interest rate to near zero. All of this was
just before short-term liquidity programs were
implemented to break the logjam in the short-
term liquidity market—where U.S. government Even before the pandemic, financial leaders relatively quickly, the impact on others will be felt
debt was trading in negative rate territory, further were concerned about a probable recession in longer—especially among those which are capital-
exacerbating fears that the health pandemic could the U.S.—despite historically low unemployment intensive with very limited revenue prospects. The
become a financial pandemic. The Commercial figures during the previous 12 months and a strong last time treasury professionals saw this kind of
Paper Funding Facility and the Money Market stock market. The U.S. Federal Reserve had also upheaval was the financial crisis. Now, more than
Funding Facility were two primary programs put in lowered interest rates, signaling reasons to be a decade later, the rear-view mirror provides a
place as tools for funding during the financial crisis cautious. Treasury and finance professionals were glimpse on how best to remain resilient in order to
a decade ago for the short end of the yield curve. dealing with the unknown and needed to rely on survive and thrive in this new normal.
The short-term liquidity programs were announced their experience from the previous financial crisis
in early March and began operating in early April. To examine current and emerging trends in
in order to manage in a unique environment. It is organizations’ cash and short-term investment
The stock market reacted harshly and declined probable that any progress made over the years holdings, investment policies and strategies, the
precipitously during the pandemic. Industries with organizations looking to optimize liquidity with Association for Financial Professionals® (AFP)
around the globe were affected including airlines, their investments will be rebuilt in the next couple conducted its 15th Annual Liquidity Survey in March
retail firms, leisure companies and hotels; after a of years. Organizations are likely to take extremely 2020. The survey generated 375 responses, which are
couple of weeks few organizations were spared. conservative postures with their investments. the basis of this report. Results from this survey will
Revenue streams declined at many companies and Managing liquidity is going to be key for treasury provide treasury and finance professionals with critical
business leaders were compelled to implement and finance professionals. Creating a liquidity benchmarks on short-term investment holdings and
strategies that included hiring freezes, making staff buffer will be important as there is tremendous strategies. AFP thanks Invesco for underwriting the
redundant and delaying capital expenditures—to uncertainty regarding when there will be a return 2020 AFP® Liquidity Survey. The Research Department
name a few—in order to preserve cash. to any semblance of normalcy. Additionally, it is of AFP designed the survey questionnaire, analyzed
When this survey was conducted, however, panic challenging to forecast when to expect an uptick in the survey results and produced the report, and is
arising from the pandemic had not fully set in. the economy. While some industries may rebound solely responsible for its content.
2020 AFP® Liquidity Survey Report | www.AFPonline.org 5
01 CASH AND SHORT-TERM
INVESTMENTS/SECURITIES
2020 AFP® Liquidity Survey Report | www.AFPonline.org 6
CASH AND SHORT-TERM INVESTMENTS/SECURITIES
At the time this survey was conducted (March Change in Cash and Short-Term Balances Over the Past 12 Months: U.S. and Non-U.S. Cash Holdings
2020), the full impact of the global COVID-19 (Percentage Distribution of Organizations)
pandemic had not been realized. This quickly
changed, and with social distancing measures in 5% 10% 5% 9%
place, nation-wide lockdowns, travel restrictions Much Smaller Much Larger Much Smaller
Much Larger
and a severe health crisis emerging, the global 11% 11%
economy is currently facing dire challenges and a Somewhat Somewhat
Smaller Smaller
recession seems very likely. 21% 19%
In the past year, prior to the COVID-19 outbreak,
Within Somewhat Outside Somewhat
the U.S. economy was looking strong, the
the U.S. Larger the U.S. Larger
unemployment rate was at historic lows and
the stock market was on the rise. Still, concerns
of an impending recession were looming in the 53% 56%
No Significant No Significant
background. Despite all the positive indicators, Change Change
organizations signaled cautious optimism.
Thirty-one percent of corporate practitioners report
an increase in their organizations’ cash holdings
within the U.S. in the past 12 months, 53 percent
indicate there has been no significant change and
16 percent report a decrease. These results are
comparable to those in the 2019 survey in which
30 percent of treasury and finance professionals
reported an increase in U.S. cash holdings and 50
percent indicated cash balances had not changed
significantly. The share of those reporting a
decrease in their companies’ cash holdings within
the U.S. decreased by four percentage points from
that reported last year (20 percent) and closer to
the 15 percent reported in 2018.
Fifty-six percent of respondents indicate that in
the past 12 months their organizations’ investment
outside the U.S. was unchanged, 28 percent report
an increase in cash and short-term balances and
16 percent report a decrease. These figures are
unchanged from those reported last year.
2020 AFP® Liquidity Survey Report | www.AFPonline.org 7
Sixty-nine percent of organizations hold some
amount of cash outside of the U.S.—higher than
the 63 percent reported last year. The share
increases to 79 percent for publicly owned
organizations. Thirty-six percent of these
companies hold at least half their cash outside the
U.S. Sixty-nine percent of large organizations—
those with at least $1 billion in annual revenue—
hold cash outside the U.S. compared to 59
percent of firms with annual revenue less than
$1 billion that do so. These findings suggest that
larger and publicly owned organizations are more
likely to invest outside the U.S. than are others.
Percentage of Organization’s Cash and Short-Term
Investments Currently Outside of the U.S.
(Percentage Distribution of Organizations) Percentage of Organization’s Cash and Short-Term Investments Currently Outside
of the U.S. for Specific Currencies
The majority of cash and short-term investments held outside the U.S. is in U.S. dollars (52 percent).
18%
24% Euros are the second-most popular currency held by organizations outside the U.S. (25 percent).
31% The Canadian dollar is third at 24 percent. Twenty-three percent of organizations’ cash and short-
36% term investments outside the U.S. are held in “other” currencies including Danish krone, Turkish lira,
UAE dirham, Egyptian pound, Nigerian naira, Indian rupee and Mexican pesos to name a few.
10%
9% 16% Percentage of Organization’s Cash and Short-Term Investments Currently Outside of the U.S.
10% for Specific Currencies
10%
7% 17% (Mean Percentage Distribution)
ALL ALL
RESPONSES RESPONSES
Zero percent
Less than 10 percent U.S. Dollar- denominated offshore 52% Hong Kong Dollar 9%
10-24 percent Euro 25% Singapore Dollar 4%
25-49 percent Canadian Dollar 24% Swiss Franc 4%
50-74 percent Pound Sterling 13% Japanese Yen 4%
At least 75 percent Renminbi 16% Other 23%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 8
Drivers of Changes in Cash Holdings over
the Past 12 months
Changes in cash holdings were impacted by various Impact of Drivers on the INCREASE in Organization’s Cash Holdings in the Past 12 Months
factors. Increased operating cash flow appears (Percentage Distribution of Organizations)
to have played a significant role in increasing 35% Significant impact
cash holdings among organizations in the past 12 Increased operating cash flow 42% Some impact
months: 77 percent of survey respondents report 23% No impact
that increased operating cash flow had either a
significant or some impact on the increase in cash 12%
holdings at their organizations over the past 12 Decreased capital expenditures 39%
months. Other drivers contributing to increased 49%
cash holdings at organizations are decreased 18%
capital expenditures (cited by 51 percent of Increased debt outstanding/ 24%
respondents) and increased debt outstanding/ Accessed debt markets 58%
accessed debt markets (42 percent). Increased
10%
debt by drawing down on revolvers was the Domestic political/regulatory risks 24%
primary liquidity source accessed by financial (e.g., U.S. trade policy)
66%
professionals to build a buffer, as there is no clear
end-date for the current crisis. 11%
Acquired company/subsidiary 21%
and/or launched new operations
68%
7%
Paid back/retired debt 25%
68%
6%
Global geopolitical risks 17%
(e.g., NAFTA, BREXIT)
76%
12%
Other 12%
76%
“Other” category includes COVID-19 preparedness and selling of a company, among other reasons cited
2020 AFP® Liquidity Survey Report | www.AFPonline.org 9
For those organizations that experienced Impact of Drivers on the DECREASE in Organization’s Cash Holdings in the Past 12 Months
decreased cash holdings compared to a year ago, (Percentage Distribution of Organizations)
key reasons for reduced cash holdings include: 16% Significant impact
— Increased capital expenditures Increased capital expenditures 39% Some impact
(cited by 55 percent of survey respondents) 45% No impact
— Decreased operating cash flow 16%
(49 percent) Decreased operating cash flow 33%
— Paid back/retired debt (44 percent) 51%
17%
Paid back/retired debt 27%
57%
16%
Acquired company/subsidiary
23%
and/or launched new operations
61%
8%
Increased share repurchases 26%
and dividends
66%
3%
Issued equity/went public 10%
87%
4%
Company was acquired by
6%
private equity
87%
6%
Other 8%
86%
“Other” includes COVID-19 and reduction in working capital
2020 AFP® Liquidity Survey Report | www.AFPonline.org 1002 INVESTMENT POLICIES
INVESTMENT POLICIES
Written investment policies are one method of Prevalence of Written Cash Investment Policies
setting parameters for managing cash holdings. (Percentage Distribution of Organizations)
They often outline the permitted investment
vehicles and the percentage of an organization’s All Responses 71% 29%
portfolio that may be allocated to those vehicles.
Annual Revenue
Furthermore, such policies can specify the
Less Than $1 Billion
69% 31%
maximum and the minimum credit rating required
for each investment vehicle. For many companies, a Annual Revenue
At Least $1 Billion 85% 15%
written investment policy—in addition to providing
a written investment strategy—is also a tactical Net Borrower 75% 25%
approach to investing cash. Policies typically
address the purpose of an investment, who can
invest, who approves changes, credit-quality
Net Investor 85% 15%
standards, approved investments, risk parameters
and escalation processes. Investment Grade 86% 14%
Seventy-one percent of organizations have a
written investment policy that dictates their short-
Non-Investment Grade 66% 34%
term investment strategy. This is nine percentage
points lower than the figure reported in last year’s Publicly Owned 83% 17%
survey, but well in line with results reported in
surveys conducted in 2015, 2016 and 2017. A Privately Held 71% 29%
vast majority of larger companies (with annual
revenue of at least $1 billion) and those that are net Yes No
investors, investment grade and publicly owned
are more likely to have written investment policies
than are other companies, although the percentage
of these organizations with written policies is also
lower compared to last year.
2020 AFP® Liquidity Survey Report | www.AFPonline.org 12Objectives of a Cash Investment Policy
Organizations are continuously working to balance their desire for safety and liquidity against a competitive
rate of return. Safety continues to be the most-valued short-term investment objective for 62 percent of
organizations, slightly lower than the 64 percent reported last year. Even though unemployment numbers
were at all-time lows, the stock market was on an upward trend and financial professionals were gaining
confidence in the economy when this survey was conducted, organizations still chose safety over liquidity.
Perhaps the small decline in the share citing safety as the most important objective can be attributed to an
uptick in liquidity allowing for access to funding where and when a firm needs it. Note that these shares of
respondents citing safety as their organization’s primary investment objective are significantly lower than
the 84 percent of financial professionals that cited safety in 2009 after the recession in 2008. Whether
a vast majority of companies will opt for safety in the wake of the severe economic crisis caused by the
COVID-19 pandemic this year is unclear. We do know, however, that the two crises are different: one was
credit driven while the other was liquidity driven.
Thirty-four percent of survey respondents indicate their organizations’ most important objective is
liquidity—slightly higher than the 33 percent reported in 2019 and the 31 percent in 2018. In fact, it is the
largest share of survey respondents citing liquidity as the primary investment objective since 2008 when
AFP began tracking this data.
As safety and liquidity remain the primary objectives for organizations, yield continues to be a distant
third. This year’s results reveal that four percent of survey respondents cite yield as the most important
investment objective for their organizations, slightly higher than the three percent reported in 2019. We can
expect in next year’s survey data to see the percentage of financial professionals citing yield as important,
drop below the current four percent.
The Most Important Objective of Organization’s Cash Investment Policy
(Percentage Distribution of Organizations with a Written Cash Investment Policy)
Safety Liquidity Yield
62% 34% 4%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 13Review of Cash Investment Policy
Written investment policies undergo periodic review to adjust for many factors. Among them are changes
in the financial condition of an organization, changes to an organization’s risk tolerance, changes in overall
market conditions and evolving preference of the company’s C-suite and Board.
While 71 percent of organizations maintain written cash investment policies, not all of them review or
update such policies regularly. Eighty percent of organizations with written investment policies review them
on a regular basis, a share unchanged from that reported in both 2019 and 2018. About half (51 percent)
of all organizations review/update policies annually and 11 percent do so more frequently—either every six
months or quarterly. Eighteen percent of companies review/update their policies every 2-4 years.
Frequency of Review/Update of Cash Investment Policy
(Percentage Distribution of Organizations with a Written Cash Investment Policy)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
ONCE A QUARTER 7% 7% 5% 7% 4% 4% 8% 3% 10%
EVERY SIX MONTHS 4% 4% 5% 3% 7% 6% 3% 5% 3%
ONCE A YEAR 51% 51% 50% 49% 55% 53% 48% 51% 46%
EVERY 2-4 YEARS 18% 15% 20% 21% 13% 16% 18% 19% 15%
NOT ON A REGULAR BASIS 20% 23% 20% 21% 21% 21% 23% 22% 26%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 14At 47 percent of organizations, investment policies Organizations with Investment Policies that Call Out/Separate Cash Holdings
call out and/or separate cash holdings used for (Percentage Distribution of Organizations with a Written Cash Investment Policy)
day-to-day liquidity from the rest of the company’s
cash and short-term investment holding—a five- All Responses 47% 53%
percentage-point decrease from last year. Those
Annual Revenue
policies include guidance stipulating the amount
Less Than $1 Billion
42% 58%
of cash holdings that is set aside for day-to-day
liquidity versus other uses. The decline in the Annual Revenue
43% 57%
At Least $1 Billion
percentage of companies that have policies calling
out cash holdings might be correlated with the
lower percentage of organizations having written
Net Borrower 42% 58%
investment policies. The share reported in the
current survey is closer to the 45 percent figure
Net Investor 45% 55%
in 2018.
Investment Grade 43% 57%
Non-Investment Grade 42% 58%
Publicly Owned 43% 57%
Privately Held 48% 52%
Yes No
2020 AFP® Liquidity Survey Report | www.AFPonline.org 15Percentage or Dollar Limits on Short-term Investment Holdings by Asset Managers or Funds
Thirty-five percent of financial professionals report their organizations have neither a percentage nor
dollar limit on short-term investment holdings by asset manager or fund. Eighteen percent of companies
impose dollar limits while 27 percent restrict short-term investment with percentage limits; the remaining
20 percent have a mix of both dollar and percentage limits. Note that there is a significant variation
between net investors and net borrowers in terms of dollar limits and percentage limits. The disparity
is even wider for percentage limits. Percentage limits allow for the changes to be proportionate to the
portfolio as it grows/shrinks, while dollar limits set specific levels of risk applicable to a fund or manager.
What’s interesting here is the dollar amount/balance of the fund is not taken into consideration necessarily
to remove concentration of risk if a fund were to have large outflows, especially as early in the current
pandemic crisis two investment managers provided liquidity/support to their money funds.
Percentage or Dollar Limits on Short-term Investment Holdings by Asset Manager or Fund
(Percentage Distribution of Organizations)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
YES, DOLLAR LIMITS 18% 15% 20% 20% 14% 16% 20% 24% 15%
YES, PERCENTAGE LIMITS 27% 30% 27% 22% 36% 33% 20% 20% 24%
YES, PERCENTAGE
AND DOLLAR LIMITS 20% 5% 24% 19% 15% 16% 21% 24% 14%
NO, NEITHER PERCENTAGE
NOR DOLLAR LIMITS 35% 49% 30% 39% 35% 34% 39% 32% 47%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 16Rating Requirements for Money Funds
A majority (83 percent) of organizations’ investment policies requires money market funds be rated.
Forty-three percent of organizations require at least one agency rating assign a AAA rating and 23
percent mandate that their money market fund earn a AAA rating from at least two agencies. Fund
ratings are meant primarily to be liquidity driven and not credit driven—a major difference in credit
rating methodologies. The three major rating agencies differ in their general ratings criteria, so it is
important to understand how they differ; an organization’s written policy incorporates these differences.
For more information, see the Institutional Money Market Funds Association’s A Comparison of Money
Market Fund Rates.
Rating Requirements for Money Funds
(Percentage Distribution of Organizations)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
DOES NOT REQUIRE RATINGS 17% 33% 11% 21% 15% 19% 17% 15% 24%
ONE AGENCY WITH AAA RATINGS 43% 37% 48% 44% 46% 39% 56% 47% 40%
AT LEAST TWO AGENCIES
WITH AAA RATINGS 23% 12% 24% 19% 22% 23% 13% 22% 17%
ONE AGENCY WITH LESS THAN
AAA RATINGS 2% – 2% 2% 1% 2% – 2% 1%
AT LEAST TWO AGENCIES
WITH LESS THAN AAA RATINGS 6% 10% 4% 5% 8% 7% 3% 4% 7%
OTHER 9% 8% 11% 9% 9% 9% 11% 9% 11%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 1703 CURRENT ALLOCATIONS
CURRENT ALLOCATIONS
In the past two years, organizations were maintaining less than 50 percent of their short-term investments Percentage of Organization’s Short-Term Portfolios
in bank deposits (46 percent in 2019 and 48 percent in 2018). In this year’s survey results, however, Allocated to Specific Investment Vehicles
we see an increase, with the typical organization currently maintaining 51 percent of its short-term (Mean Percentage Distribution of Cash and Short-Term
Investment Holdings)
investment portfolio in bank deposits. This allocation represents a five-percentage-point increase from
2019 and a two-percentage-point increase from 2018. The higher balance being allotted to bank deposit
PERCENTAGE OF
products could potentially be pandemic (COVID-19) driven. As interest rates dropped to zero when this
SHORT-TERM PERCENTAGE OF
survey was being conducted, bank relationships were called upon as companies drew down on revolvers INVESTMENTS IN BANK SHORT-TERM
and accessed extra liquidity. The offset is possibly reflected in the higher balances maintained in bank DEPOSITS, MMFs INVESTMENTS
products as companies look to extend their share of the wallet with safety being paramount—all else AND TREASURY BILLS IN BANK DEPOSITS
being equal.
Companies maintain their investments in relatively few vehicles. Organizations invest in an average of 2020 77% 51%
2.27 vehicles for their cash and short-term investments. This average is a decrease from the 2.60 figure
2019 74% 46%
reported in 2019.
The majority of organizations continues to allocate a large share of their short-term investment balances— 2018 75% 49%
an average of 77 percent—in perceived safe and liquid investment vehicles: bank deposits, money market
funds (MMFs) and Treasury securities. The allocation to Government/Treasury money market funds is 16 2017 76% 53%
percent, slightly higher than the 14 percent reported last year.
2016 77% 55%
2015 77% 56%
2014 75% 52%
2013 74% 50%
2012 74% 51%
2011 78% 42%
2010 74% 51%
2009 78% 37%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 19Percent of Organization’s Short-Term Investments Allocated to Specific Investment Vehicles
(Mean Percentage Distribution of Cash and Short-Term Investment Holdings)
ANNUAL REVENUE ANNUAL REVENUE 2019
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY ALL
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD RESPONSES
BANK DEPOSITS
(DDAS, TIME DEPOSITS, CDS, ETC.) 51% 57% 44% 55% 42% 45% 56% 50% 56% 46%
GOVT/TREASURY MONEY MARKET
MUTUAL FUNDS 16% 11% 22% 15% 19% 14% 21% 18% 17% 14%
EURODOLLAR DEPOSITS
(U.S. DOLLAR DENOMINATED TIME
DEPOSITS AT BANKS OUTSIDE THE U.S.) 5% 4% 5% 5% 4% 6% 3% 8% 3% 4%
TREASURY BILLS 5% 4% 5% 4% 6% 7% 1% 4% 3% 6%
PRIME/DIVERSIFIED MONEY MARKET
MUTUAL FUNDS 5% 3% 7% 2% 9% 6% 4% 6% 3% 5%
SEPARATELY MANAGED ACCOUNTS 3% 5% 2% 2% 4% 4% 3% 1% 3% 5%
COMMERCIAL PAPER 3% 3% 4% 3% 3% 4% 2% 3% 3% 4%
AGENCY SECURITIES 2% 3% 2% 3% 2% 4% 1% 1% 1% 4%
REPURCHASE AGREEMENTS 1% 1% 2% 1% 1% 1% 1% 1% 1% 1%
ASSET-BACKED SECURITIES 1% 1% 1% 1% 1% 1% 1% 1% 3% 1%
ENHANCED CASH/
CONSERVATIVE INCOME/
ULTRASHORT BOND FUNDS
(E.G., CASH PLUS) 1% 1% 1% 1% 1% 1% 1% 1% – 2%
MUNICIPAL SECURITIES 1% – 1% – – 1% – – – 1%
MUNI/TAX-EXEMPT
MONEY MARKET FUNDS 1% 2% – 1% – 1% – 1% 5% 3%
OTHER 6% 6% 5% 4% 6% 6% 5% 4% 5% 4%
MEAN NUMBER OF VEHICLES USED 2.27 2.22 2.36 2.10 2.63 2.67 1.73 2.18 2.01 2.6
“Other” includes corporate bonds, Eurobonds, group cash pool and secured notes
2020 AFP® Liquidity Survey Report | www.AFPonline.org 20Environmental, Social and Governance (ESG) Investment Parameters in Operating Cash ESG (environmental, social and governance)
Investment Parameters in Operating Cash
The Principles for Responsible Investment (PRI) is an association that defines “responsible investment as (Percentage Distribution of Organizations)
a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment
decisions and active ownership. Environmental factors include climate change, resource depletion, waste, 14% 18%
Unsure
pollution, deforestation. Social aspects are incorporated as human rights, modern slavery, child labor, Yes
working conditions, and employee relations. Governance deals with bribery and corruption, executive pay,
board diversity and structure, political lobbying and donations, and tax strategy.”
Only 18 percent of respondents consider ESG investment parameters when managing operating cash, 68
percent do not consider ESG and 14 percent are unsure about taking ESG parameters into account. The 68%
share of those organizations that are considering ESG parameters is four percentage points higher than No
that reported in last year’s report. Net investors (27 percent) and privately held organizations (20 percent)
are more likely to consider ESG criteria than are other organizations. Imposition of the Same Investment ESG parameters
Half of respondents impose the same investment ESG parameters globally as domestically while 34 percent Globally as Domestically
do not impose them the same; 16 percent are unsure. A higher percentage of smaller organizations (those (Percentage Distribution of Organizations)
with annual revenue of less than $1 billion) (64 percent) and privately owned organizations (56 percent) 16%
impose the same investment ESG parameters globally as domestically. Unsure
Organizations investing in ESG investments are investing in the following:
— ESG Money funds (cited by 38 percent of respondents)
50%
— Separately managed accounts (24 percent) 34% Yes
— Individual securities (21 percent) No
ESG Investments
(Percent of Organizations)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
ESG MONEY FUNDS 38% 38% 45% 23% 44% 37% 36% 27% 50%
SEPARATELY MANAGED ACCOUNTS 24% 31% 20% 31% 20% 22% 27% 9% 38%
INDIVIDUAL SECURITIES 21% 15% 10% 8% 24% 22% 9% 36% 6%
OTHER POOLED FUNDS 19% 15% 25% 15% 20% 19% 18% 9% 6%
MINORITY-OWNED BROKER PRODUCTS 5% 8% 5% 8% 4% 4% 9% 9% 6%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 21Shifts in Investment Mix Anticipated Changes in Investment Mix
(Percentage Distribution of Organizations that Anticipate Changes in Investment Mix)
The anticipated changes in investment mix are
more likely to be observed in bank deposits, with
26 percent of respondents anticipating an increase
INCREASE DECREASE NO CHANGE
and 15 percent expecting a decrease. Other
investments likely to be impacted by shifts in an BANK DEPOSITS (DDAS, TIME DEPOSITS, CDS, ETC.) 26% 15% 59%
organization’s investment mix are Government/ GOVT/TREASURY MONEY MARKET MUTUAL FUNDS 17% 11% 72%
Treasury money market funds and Treasury bills.
As stated earlier, the increase in the investment TREASURY BILLS 12% 5% 83%
mix towards bank deposits and Government/ COMMERCIAL PAPER 11% 7% 83%
Treasury money funds not only reflects a flight
PRIME/DIVERSIFIED MONEY MARKET MUTUAL FUNDS 9% 8% 83%
to perceived safety, but also as money funds
durations decrease, there is additional yield to SEPARATELY MANAGED ACCOUNTS 9% 2% 89%
capture as rates were set to zero.
REPURCHASE AGREEMENTS 7% 5% 88%
AGENCY SECURITIES 7% 6% 87%
ASSET-BACKED SECURITIES 6% 3% 91%
MUNICIPAL SECURITIES 6% 4% 91%
EURODOLLAR DEPOSITS
(U.S. DOLLAR-DENOMINATED TIME DEPOSITS AT BANKS OUTSIDE THE U.S.) 5% 9% 86%
MUNI/TAX-EXEMPT MONEY MARKET FUNDS 5% 4% 91%
ENHANCED CASH/CONSERVATIVE INCOME/ULTRASHORT BOND FUNDS
(E.G., CASH PLUS) 4% 2% 93%
ETF BOND OR CASH STRATEGIES 4% 2% 94%
AUCTION RATE SECURITIES 1% 2% 97%
VARIABLE RATE DEMAND NOTES 1% 3% 96%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 22Allocations Outside the U.S.
Those organizations with cash and short-term investment holdings outside of the U.S. manage their cash holdings
similarly as they do their domestic ones. Seventy percent of non-U.S. cash holdings are maintained in bank-type
investments (including certificates of deposits, time deposits, etc.). This is similar to last year’s survey result of 75
percent. Another 21 percent is held in money market mutual funds and government-type securities—10 percentage
points higher than the share that reported investing in these vehicles in the 2019 survey.
Percent of Organization’s Short-Term Portfolio Currently Allocated to Specific Investment Vehicles Outside the U.S.
(Mean Percentage Distribution of Cash and Short-Term Investment Holdings Among Organizations with Cash Outside the U.S)
0 70% 20 40 60 80 100
Bank-type investments (DDAs, CDs, Time Deposits, etc.) 6%
Other
3%
Commercial
paper
8%
Government-type
securities
13%
Money market
mutual funds
2020 AFP® Liquidity Survey Report | www.AFPonline.org 23Banks as Major Depositories for Cash and Short-term Investment Holdings
As the survey results suggest, banks are still major depositories for companies’ U.S.-based cash and short-term
investment holdings. The share of companies holding their short-term investments in banks increased slightly to
51 percent from 46 percent in 2019 and 49 percent in 2018. As the crisis surrounding the pandemic unfolds, it is
imperative that the relationships between organizations and their banking partners be strong and that organizations
have great trust in their banks as they maintain their liquidity in these institutions during these unprecedented times.
Treasurers consider several factors when deciding where to place their organizations’ cash and short-term
investments. A vast majority considers the overall relationship with their banks a determinant (cited by 93 percent
of survey respondents) while 73 percent indicate that the credit quality of a bank is a deciding factor. During the
financial crisis, credit quality of the bank was a primary driver in bank product utilization. With the pandemic, the
overall relationship with banks is a key driver, suggesting that financial professionals are heavily invested in such
relationships. However, they are prudent when looking at the long term and ensure that the credit quality is up
to par. Rates are the third most important consideration, and this result is in line with the principles organizations
follow when investing: safety first, liquidity second, and yield a distant third. As the pandemic and its aftermath
unfold, organizations are focused on being able to access credit and remaining viable.
Significant Determinants for Which Banks to Use When Investing in Bank Deposits
(Percent of Respondents)
Overall relationship with bank 93%
Credit quality of the bank 73%
Compelling rates offered on deposits 52%
Simplicity of working with bank 40%
Earnings credit rates (ECR) 33%
Regulatory considerations 23%
KYC process the bank uses 14%
Transparency in ECR rate to a benchmark rate 10%
Ability to determine how to apply ECR 8%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 24Organizations rely on various bank instruments for their cash and short-term investments. The most
commonly used bank products are interest-bearing deposit accounts and time deposits. Interest-bearing
deposit accounts are the most often-cited bank product: 62 percent of treasury and finance professionals
report their organizations use interest-bearing deposit accounts. Time deposit products are being used
by 46 percent of organizations, an increase from the 40 percent reported last year. The use of structured
bank deposit products has decreased by 18 percentage points from 49 percent to 31 percent. The share of
organizations using non-interest-bearing accounts is down from 38 percent in the 2019 survey to 22 percent.
The high allocation to interest-bearing deposit accounts is perhaps a by-product of the high point of the
fed funds target rate at 2.5 percent in early 2019 when the Federal Reserve was attempting to keep pace
with unemployment. It was not until late 2019 and into March 2020 that we saw the tapered decline in the
federal funds rate which ultimately dropped to zero.
Instruments Used When Investing in Bank Deposits
(Percent of Organizations that Maintain Cash and Short-Term Investment Holdings at Banks)
Interest-bearing deposit accounts 62%
Time deposits (e.g., CDs) 46%
Structured Bank Deposit Product (e.g., MMDA products) 31%
Non-interest-bearing deposit accounts 22%
Structured certificates of deposit (e.g., bulk CD products) 19%
Hybrid (ECR and Interest bearing) 14%
Other bank products 4%
“Other” includes Overnight sweeps, CDARS, ECR and Fixed Deposit
2020 AFP® Liquidity Survey Report | www.AFPonline.org 25Maturity
Organizations continue to place most of their short-term investment holdings in instruments with Organization’s Short-Term Investment Portfolio in
very short maturities. On average, 45 percent of all short-term investment holdings are in vehicles Terms of Maturity
(Percentage Distribution of Organizations)
with maturities of one day or less, while 18 percent of all short-term investment holdings are in
vehicles with maturities of between 8 and 30 days. Another 10 percent of short-term investments
are held in vehicles with maturities between 2 and 7 days. 4% 5% 1 day
5% 2-7 days
Seventy-seven percent of financial professionals anticipate their organizations will maintain the 8-30 days
current maturity profile over the next 12 months. This is lower than the 82 percent reported in the 13%
45% 31-90 days
2019 survey. Only 10 percent expect to lengthen the average maturity and the remaining 13 percent
91-180 days
of organizations plan to further shorten the average maturity timeframe over the next year. During
the COVID-19 crisis, shorter investment maturities will be preferred keeping pace with liquidity 18% 181-365 days
needs; it was early in March 2020 when the Federal Reserve intervened with liquidity programs. 10% More than a year
The most often-cited reasons for the change in average maturity of holdings in the next
Expectation for Change in Average Maturity of Holdings
12 months are:
in the Next 12 Months
Lengthening average maturity is the risk in capital markets, stock market volatility (Percentage Distribution of Organizations)
(cited by 41 percent of survey respondents) and economic risk and fear of recession (35 percent)
13% 10%
Shortening average maturity is primarily to manage economic risk and fear of recession
(59 percent) and short-term cash needed for business (54 percent)
Lengthen
Maintaining the average maturity of their holdings is primarily to ensure access to short-term cash Keep the same
needed for business (82 percent) Shorten
77%
Reasons for Choice of Option Selected Above
(Percent of Organizations)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
SHORT-TERM CASH NEEDED FOR BUSINESS 73% 70% 75% 77% 67% 73% 73% 75% 74%
RISK IN THE CAPITAL MARKETS,
STOCK MARKET VOLATILITY 30% 27% 31% 23% 42% 34% 24% 32% 26%
ECONOMIC RISK, FEAR OF RECESSION 30% 32% 29% 27% 36% 31% 31% 26% 32%
CENTRAL BANKS INCREASING POLICY RATE 7% 11% 3% 5% 9% 6% 9% 1% 13%
OTHER 8% 6% 10% 7% 9% 7% 7% 8% 8%
“Other” includes business model/opportunities, COVID-19, more available liquidity/more flexibility, low interest-rate environment
2020 AFP® Liquidity Survey Report | www.AFPonline.org 2604 MONEY MARKET FUNDS 2020 AFP® Liquidity Survey Report | www.AFPonline.org 27
MONEY MARKET FUNDS
Primary Drivers in Selection of Money
Market Funds
There are various drivers that play a role in the Importance of Primary Drivers in Selection of Money Market Fund
selection of money market funds. The top three are (Ranked on a scale from 1-10, where 1 is most important and 10 least important)
fixed or floating NAV, yield and counterparty risk of 2020 2019
(Percent of Respondents)
underlying instruments. Fifty-six percent of survey
respondents cite fixed or floating NAV as a primary 1 Fixed or floating NAV 56% 56%
driver, 38 percent cite yield and 37 percent cite
counterparty risk of underlying instruments. In 2019
the top three drivers were fixed or floating NAV, 2 Yield 38% 40%
yield and fund ratings.
The change in the mix reflects two factors: the
desire for prudent safety in terms of fixed NAV and 3 Counterparty risk of underlying instruments 37% 36%
diversification in times of stressed liquidity. We
often see the changes in this mix from year to year, Fund sponsor as part of our overall
with the one exception that fixed or floating NAV 4 bank relationship mix and support 37% 33%
continues to be the primary driver in the selection
of a money fund. Equal this year to counterparty
risk is the relationship aspect of investing. The fund 5 Ease of transaction process 35% 30%
sponsor being part of the bank relationship mix
is equally important, further driving the need for
treasury professionals to leverage their share of the 6 Fund ratings 34% 38%
wallet across
Investment manager for separately managed accounts
7 or manages other investment products for us 24% 33%
8 Accounting treatment for the fund 18% 19%
9 Gates and fees 13% 13%
10 Diversification of underlying instruments 6% 14%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 28Resources
Banks play a key role in supporting organizations in their cash and short-term investment strategies by
providing them with critical information on economic indicators and trends. In the past few years, it has
been challenging to accurately predict the economic environment, and organizations are more likely to look
to their banking partners for sound advice. This year’s survey results substantiate this claim; 94 percent
of financial professionals identify banks as resources their organizations use for cash and short-term
investment holding information.
Other resources used by financial professionals include:
— Investment research from brokers/investment banks (cited by 40 percent of respondents)
— Credit rating agencies (35 percent)
— Money market portals (32 percent)
— Money market funds (31 percent)
Over half the survey respondents (58 percent) would prefer to receive information from the above sources
via email. Forty-three percent would like to receive this information from a combination of in-person
meetings and electronically.
Resources Utilized to Obtain Operating Cash and Short-Term Investment Holdings Information
(Percent of Organizations)
Banks 94%
Investment research from brokers/investment banks 40%
Credit rating agencies 35%
Money market portals 32%
Money market funds 31%
Data feeds from information sources 17%
Custodians 15%
Credit research firms or third party 9%
Other 1%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 29The primary rationale for investing in U.S. Domestic Prime/Floating NAV Funds is yield (cited by 69 percent
of respondents) followed by fund ratings/credit quality (46 percent). For privately held organizations,
80 percent of respondents note that yield is the primary rationale for investing in U.S. Domestic Prime/
Floating NAV Funds as well. Other primary rationales respondents selected are diversification of underlying
instruments (36 percent), ease of transaction process (31 percent) and fund sponsor as part of our overall
bank relationship mix and support (24 percent). As noted earlier in this report, the current allocation to
prime funds is five percent, so this perspective is probably more that of the opportunistic-type investor
with a higher risk tolerance.
Primary Rationale for Investing in U.S. Domestic Prime/Floating NAV Funds
(Percent of Organizations)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
YIELD 69% 77% 65% 75% 64% 65% 74% 61% 80%
FUND RATINGS/CREDIT QUALITY 46% 47% 48% 43% 50% 44% 47% 33% 53%
DIVERSIFICATION OF
UNDERLYING INSTRUMENTS 36% 36% 35% 30% 41% 40% 28% 24% 37%
EASE OF TRANSACTION PROCESS 31% 28% 32% 33% 29% 31% 33% 30% 29%
FUND SPONSOR AS PART OF OUR OVERALL
BANK RELATIONSHIP MIX AND SUPPORT 24% 21% 25% 30% 19% 24% 26% 24% 29%
COUNTERPARTY RISK OF
UNDERLYING INSTRUMENTS 21% 26% 18% 18% 26% 24% 19% 15% 31%
COMFORTABLE WITH ACCOUNTING
TREATMENT FOR THE FUND 18% 15% 20% 13% 22% 14% 23% 13% 20%
FNAV FUNDS DO NOT FLOAT
ALL THAT MUCH 13% 13% 12% 13% 12% 10% 19% 11% 12%
ENVIRONMENTAL, SOCIAL,
GOVERNANCE (ESG) REASONS 8% 9% 8% 7% 9% 6% 12% 7% 12%
OTHER 8% 2% 12% 7% 10% 8% 7% 15% 6%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 30For the 27 percent of organizations that do invest outside of the U.S. and in a Type of Funds Invested in Outside of the U.S. in a European MMF
European MMF (second only to bank deposits), euro-denominated debt is the (Percent of Organizations)
second-highest rated currency after USD offshore. The most often-cited type
of fund invested is low volatility NAV short-term MMF (26 percent). Forty-
one percent of respondents are still researching a decision; that is a large
9%
Researching a decision
contingency given the high allocation to euro-denominated vehicles. Nearly half 11%
of non-investment grade organizations and privately held organizations (49 Low Volatility NAV Short-term MMF
percent) are still researching a decision, compared to 31 percent of net investors. 41%
13% Public Debt CNAV Short-term MMF
Separately managed accounts were selected as common alternative investment
Standard Variable NAV MMF
option that organizations consider to complement current investment selection
(43 percent). Fifty-nine percent of privately held organizations also selected Variable NAV Short-term MMF
separately managed accounts, while only 29 percent of publicly owned 26%
organizations did so. This has been the primary alternative investment option
after the establishment of Prime Funds since 2016.
Extending maturities (31 percent), ultrashort funds (21 percent) and ETFs
bond or cash strategies (21 percent) were other alternative investment cited
by respondents.
2020 AFP® Liquidity Survey Report | www.AFPonline.org 31Real-Time Payments Operating in a 24/7 Environment – Real-Time Treasury
Sixty-one percent of respondents expect the money market industry to provide 24/7 liquidity while
14 percent do not. However, 25 percent are unsure if real-time payments operating in a 24/7 environment
should require the money market industry to provide 24/7 liquidity.
Expectations that the Money Market Industry Would Provide 24/7 Liquidity with Real-Time Payments Operating in a 24/7 Environment
(Percentage Distribution of Organizations)
25% 18% 28%
Unsure Unsure
Unsure
Annual Annual
All Revenue Revenue
Responses 20% Less Than At Least 56%
61% $1 Billion
14% Yes
No 62% $1 Billion Yes
No Yes 16%
No
Eighty-two percent of financial professionals indicate their organizations would consider Real-Time Money
Market Fund (82 percent) and over 60 percent report their organizations would be looking at Real-Time
Investment Sweep. Real-Time Earnings Credit Rate would be considered by 40 percent of organizations.
It is notable that investors are looking to the money fund industry rather than their higher allocated bank
deposit products to provide liquidity when real time payments are more mainstream, suggesting real time
liquidity products need to be in place.
Vehicles Under Consideration Assuming the Options fit with Investment Policy
(Percent of Organizations)
Real-Time Money Market Fund 82%
Real-Time Investment Sweep 61%
Real-Time Earnings Credit Rate 40%
Real-Time investment options “to follow the sun” 23%
Other 1%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 3205 LIBOR TRANSITION 2020 AFP® Liquidity Survey Report | www.AFPonline.org 33
PREPARING PORTFOLIOS FOR LIBOR TRANSITION
Sixty percent of organizations currently do not have plans to prepare operating cash and investment
portfolios for the Libor transition while 32 percent are researching it. Only seven percent confirm they have
established it as a part of a larger transition Libor ask force. A higher percentage of larger organizations
with annual revenue of at least $1 billion, those that are net investors, non-investment grade and privately
held have firm plans in place to prepare for the Libor transition than do other companies. The deadline for
the Libor transition—December 2021—seems to be off in the distance, and even more so since financial
professionals are currently focused on keeping their organizations viable through the crisis surrounding
COVID-19. Perhaps as the deadline gets closer, we will see an uptick in preparation coupled with a higher
use of SOFR in the investment landscape.
Organizations that have prepared or preparing for Libor transition are doing the following:
— Surveying investment managers and issuers regarding their plans (cited by 35 percent of respondents)
— Establishing investment maturity prior to December 2021 (31 percent)
— Reviewing provisions for Floating Rate, Note resets and fallback language (25 percent)
Plans to Prepare Operating Cash and Investment Portfolios for Libor Transition
(Percentage Distribution of Organizations)
ANNUAL REVENUE ANNUAL REVENUE
ALL LESS THAN AT LEAST NET NET INVESTMENT NON-INVESTMENT PUBLICLY PRIVATELY
RESPONSES $1 BILLION $1 BILLION BORROWER INVESTOR GRADE GRADE OWNED HELD
NO PLANS CURRENTLY 60% 52% 42% 44% 50% 47% 45% 43% 46%
RESEARCHING CURRENTLY 32% 43% 46% 49% 37% 44% 43% 49% 41%
YES, ESTABLISHED AS PART OF A
LARGER TRANSITION LIBOR TASK FORCE 7% 5% 12% 7% 13% 9% 12% 9% 13%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 34CONCLUSION As the COVID-19 pandemic continues to wreak havoc, liquidity planning at organizations will continue to be a key focus—definitely for the second and third quarters of 2020 and most likely through the end of the calendar year. Companies need to remain a going concern, and treasury departments are on the front lines when it comes to protecting their organizations. Treasury and finance professionals will have to maintain a liquidity buffer and ensure they have a seat at the table with their company’s CFO, as they did during the financial crisis. Over 30 percent of corporate practitioners report an increase in their organizations’ cash holdings within the U.S. in the past 12 months, while slightly over half indicate there has been no significant change. Additionally, 56 percent of respondents indicate that in the past 12 months their organizations’ investments competitive rate of return. Safety continues to be percentage-point increase from 2018. This validates outside the U.S. were unchanged and 28 percent the most-valued short-term investment objective for the view that financial professionals were losing report an increase. The little change observed in cash over 60 percent of organizations. This is significantly confidence in the economy even before the pandemic holdings signals that financial professionals were not lower than the 84 percent of financial professionals and were looking to allocate their investments in safer fully convinced that the economy was on solid footing that cited safety as their organization’s primary options. The majority of organizations continues to even before the COVID-19 pandemic. investment objective in 2009 after the recession in allocate a large share of their short-term investment Changes in cash holdings are impacted by various 2008—a level that might suggest we can expect larger balances—an average of 77 percent—in perceived safe factors. Over three-fourths of survey respondents shares of companies opting for safety in the future in and liquid investment vehicles: bank deposits, money report that increased operating cash flow had either the wake of the pandemic. The 34 percent of survey market funds (MMFs) and Treasury securities. a significant or some impact on the increase in cash respondents citing liquidity as the primary investment Banks play a key role in supporting organizations in holdings at their organizations over the past 12 objective is the highest percentage since 2008 when their cash and short-term investment strategies by months. For those organizations that experienced AFP began tracking this data. As in past years, yield providing them with critical information on economic decreased cash holdings compared to a year ago, continues to rank third at a mere four percent. indicators and trends. In the past few years, it has key reasons for reduced cash holdings include In the past two years, organizations were maintaining been challenging to accurately predict the economic increased capital expenditures and decreased less than 50 percent of their short-term investments in environment, and organizations are more likely to look operating cash flow. A few respondents indicate that bank deposits; however, this year’s survey data reflect to their banking partners for sound advice. This year’s COVID-19 was playing a role in both increasing and an increase, with the typical organization currently survey results substantiate this claim; a vast majority decreasing cash holdings. maintaining 51 percent of its short-term investment of financial professionals identify banks as resources Organizations are continuously working to balance portfolio in bank deposits. This allocation is a five- their organizations use for cash and short-term their desire for safety and liquidity against a percentage-point increase from 2019 and a two- investment holding information. 2020 AFP® Liquidity Survey Report | www.AFPonline.org 35
06 ABOUT THE SURVEY PARTICIPANTS
ABOUT THE SURVEY PARTICIPANTS
In March 2020, the Association for Financial Annual Revenue (USD) Net Borrower or Net Investor
Professionals® (AFP) conducted a survey on current (Percentage Distribution of Organizations) (Percentage Distribution of Organizations)
and emerging trends in organizations’ cash and
short-term investment holdings, investment policies Under $50 million 6%
and strategies. AFP received 213 responses from its
corporate practitioner members and an additional 162
responses were received from corporate practitioners
$50-99.9 million 4% 40% Net borrower
who are not AFP members. The combined 375 Net investor
responses form the basis of this report. $100-249.9 million 5% 60%
AFP thanks Invesco for underwriting the annual
AFP Liquidity Survey. The survey questionnaire $250-499.9 million 13%
and the report were produced by the Research
Department of the Association for Financial Organizations’ Credit Ratings
$500-999.9 million 15% (Percentage Distribution of Organizations)
Professionals which is solely responsible for the
content of the report. The demographic profile
of the survey respondents mirrors that of AFP’s $1-4.9 billion 32%
membership. The following tables summarize the
characteristics of the survey respondents where $5-9.9 billion 13% 38%
organization-level demographics are provided. Investment grade
$10-20 billion 7% 62% Non-investment grade
Over $20 billion 6%
2020 AFP® Liquidity Survey Report | www.AFPonline.org 37You can also read
