VideoEvery morning, while he's waiting for his coffee to cool, Richard Green, assistant treasurer of Greyhound Lines Inc., pulls up an Internet connection and logs into Comerica Bank's MoneyMarket Trader Web portal. He checks the company's portfolio of money-market funds to see how much the investments earned in the overnight market.
He then peruses the 30 fund families offered by the Web site to compare one-day yields, and selects funds that offer the highest daily rates and fit Greyhound's investment criteria — which include credit ratings and performance measures. Like most treasury managers, Green uses MMFs as overnight cash-investment vehicles to maintain liquidity while earning a competitive return.
Currently, Green trades $11 million in the funds daily. But that total will increase to about $50 million by the end of the year, when more travelers hit the road, increasing Greyhound's revenues and the amount of cash earmarked for overnight investment. By the time his coffee cools — about two or three minutes from the time he logs on — Green has settled the trades via a single wire transfer, and logs off.
The portal technology, built and distributed by Cache Matrix LLC, uses an "omnibus" methodology, in which trades are consolidated and then settled through a Comerica custodial account in a single wire. The method, like the technology, is a big time-saver.
The first time Green used the portal, in December 2004, he picked up a 5-basis-point gain on his MMF portfolio in overnight trading by moving investments to higher-yielding funds not offered by his Merrill Lynch fund manager. Traditionally, fund managers offer proprietary funds owned by their parent companies.
Indeed, there's no doubt that MMF portals offer more fund choices and transaction speed than the offline method of trading, in which treasury managers call brokers or fund managers directly to compare yields, place multiple trades, and settle by sending off multiple wire transfers.
But with such obvious, and proven, benefits, why hasn't the technology caught on in a big way with corporate treasury departments across the country? The answer, it seems, is that abundant use of the portals could be seen as a threat to relationships between corporations and banks.
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While portal vendors are tight-lipped about revealing exact customer numbers, it's likely that hundreds of corporate treasury managers use MMF portals. And why not? Besides trading tools, portals provide managers with access to current portfolio holdings performance, prospectuses, wire information, fund applications, and more without leaving the centralized Web site. Further, portals provide a neat paper trail for managers who are required to comply with the internal-controls documentation provisions of Section 404 of the Sarbanes-Oxley Act.
The timing for portals is right, too, since corporations tend to have a lot of cash on hand now. In 2005 corporate cash and cash equivalents so far total $5 trillion, up from $4.7 trillion in all of 2004, according to an upcoming report by Treasury Strategies Inc., a consulting firm. Further, as cash accounts grow, more treasury departments are being instructed by management and boards to spread out investments over several fund families as a diversification measure, rather than sticking with a single fund's product line, notes Tom Nelson of STN Money Markets, another portal provider.
Despite the abundant benefits of portals, treasurers haven't embraced them as a must-have technology. Many observers assert that the choice not to use a portal — or use one sparingly — is simply a matter of preference: Some treasury managers like the daily contact with brokers and the advice they provide.
Banking relationships, in short, are critical to corporations, and the sheer power of a good one can supplant technology advances that provide mere efficiency. "What you may gain in efficiency, you may lose in a relationship with the fund company," says Carol Lewis, president of Global Card Holdings Inc., a Denver-based subsidiary of AT&T Corp. For more than 10 years, Lewis managed cash for AT&T and its subsidiary and speaks often to treasury-industry groups about portals. "I don't think portals are for everyone, but certainly each investor should evaluate for themselves what the use of portals will entail for them," she says.
Lewis won't disclose whether AT&T or any of its subsidiaries currently use MMF portals. But in general, she notes, portal users tout transaction speed as one of the main benefits of the technology. "If you are processing a large number of trades each day, [portals] could be a time-saver."
On the other hand, says Lewis, non-portal users cite their desire to keep in contact with fund vendors as the reason for shunning the technology. Corporations have heavier-duty vendor relationships — including ones related to investment banking, commercial lending, and securities underwriting — than those involving MMFs. Some treasury managers "don't want to rock that boat," she says.
Skillfully managing banking relationships is a priority for treasurers, and portals force managers to rework these relationships in some ways. For instance, portals based on the omnibus model shield the investor's identity from MMF managers. Since fund managers don't know which corporate treasurers are moving in and out of funds, the treasurers are spared from haggling that can arise when investments are moved.
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