The majority of organizations’ short-term investments are kept in bank deposits

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Results from the Association of Financial Professionals (AFP) 2022 AFP Liquidity Survey, underwritten by Invesco, indicate that the typical organization currently maintains 55% of its short-term investments in bank deposits. This is the highest figure since 2016, when it was also reported that 55% of organizations held their short-term investments in banks. This is only a slight increase from the figures for 2021 and 2020, which were 52% and 51% respectively. The biggest increase occurred from 2019 to 2020, when it jumped 9%. Similar trends are also observed for short-term investments outside the United States (69%).

The survey also found that 57% of organizations are preparing their portfolios ahead of expected increases in target federal funds rates, with 34% doing so by managing the duration of their portfolios. Others consider investing in floating rate bonds, creating bond maturity ladders, or using a barbell approach with selected securities.

The results suggest companies are showing cautious optimism while bolstering their cash to mitigate uncertainty, as the share of organizations planning to increase their US cash holdings fell 10 percentage points to reach 37%, compared to 47% who said the same last year.

Additional findings include:
• Security continues to be the most important short-term investment goal for 63% of organizations. This is to be expected given the economic uncertainty due to high inflation rates, anticipated actions by the Federal Reserve and the tense geopolitical environment.
• Twenty-five percent of organizations consider environmental, social and governance (ESG) investment metrics, which is significantly higher than the 17% reported in last year’s survey report.

Just over a quarter (26%) of respondents say their organizations plan to prepare operating cash and investment portfolios for the LIBOR end date of June 30, 2023. This is a increase of 11 percentage points over last year.
• The AFP Liquidity Survey was conducted in March 2022 and received responses from 284 corporate practitioners.

“Over the past year, the economic environment has been filled with uncertainty. Therefore, it is not at all surprising that the majority of organizations make security their primary investment focus,” said AFP Chairman and CEO Jim Kaitz. “That said, we are optimistic as a lower percentage of respondents report an increase in cash and short-term balances in their organizations over the past year compared to the previous year, suggesting that companies are less constrained than they were in 2021.”

“It was a remarkable time in liquidity markets, from the early days of the pandemic in 2020 to the sharp acceleration in inflation and the Federal Reserve’s aggressive shift to monetary policy tightening in 2022,” Laurie continued. Brignac, CIO, global liquidity, Invesco. “As companies prepare to put cash to work, investors need to be strategic in their approach to uncover opportunities in a higher interest rate environment while managing a very aggressive bull cycle.”

The survey results are available on afponline.com.

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