What unites us !
Corporate treasurers and private equity managers (for treasury matters) have a lot of common issues (e.g. regulatory, technical, financial or staffing concerns). It certainly pleads for more cooperation between the two communities and the respective associations in Luxembourg (i.e. LPEA and ATEL). We could share experience, feed each other and cross-fertilize our own experiences.
What concerns us, should bring us closer
It seems obvious to me that private equity (PE) managers and corporate treasurers have a lot of common technical and financial topics. Who would dare say today that he/she can afford not to be optimal in managing his/her cash management? Even a PE manager must manage and maximize his/her position while ensuring the security of transfers and compliance with various financial regulations. These topics, that we have in common, allow us to learn from each other’s experiences and share our respective approaches.
In a similar vein, family offices (FOs) also have common interests with corporate treasurers. Market conditions and lower returns than in the past have pushed PE’s to better optimize their cash management to create value, not just by buying and selling assets. These days excess cash has a cost. They must also deal with a series of technical, regulatory, tax and economic constraints, as well as corporate treasurers. But what are these common subjects you will ask me? There are several issues we both share. For example, I can list some of these issues.
"Private Equity managers and corporate treasurers have a lot of common technical and financial topics."
Common issues for PE’s and corporates in terms of treasury
The banking relationship and the growing difficulty of KYC requirements. Treasurers in Luxembourg are working on a “blockchain” solution to facilitate these data exchanges and, for its part, SWIFT has revived the idea of a “KYC register” for corporates that was tested by some corporates last year.
The payments that treasurers have fully automated, in paperless mode, via SWIFT, to take advantage of the “gpi” (i.e. “Global Payment Innovation”) for cross-border payments (i.e. SWIFT gpi offers traceability, transfer confirmation, higher speed and transparency). Automated gpi payments are typically an urgent need for a PE manager. Tomorrow, you can be certain that no bank in the world will keep accepting and executing paper payments or the so-called “fax payments” for cost and security reasons.
Cash surpluses remain a problem when interest rates are negative. The treasurer has, for a very long time, used money market funds to mitigate and diversify his/her risk, has insured his/her return and limited the negative yield impacts. Asset (cash) management must become more dynamic if we want to return to positive territories and limit the value-destruction hemorrhage.
Foreign exchange (FX) is a daily problem for the treasurer as the volatility of markets in the midst of a trade war is at its peak. Not to be covered would be a crime of “lèse-majesté” for a treasurer or a PE manager, wouldn’t it? Unfortunately, as the cost of hedging has increased noticeably over time, so has the need.
As is the case for treasurers, bridge financing is essential for PE’s and requires tight negotiation to limit the cost of carry. This requires strong negotiation with bankers to reduce the cost of funding.
IFRS accounting standards affect all those who must report under their principles and impose fair value principles. Their complexity is growing even if, for hedging, IFRS 9 has broadened the horizons of treasurers and slightly relaxed the rules.
Taxes and new EU BEPS (i.e. ATAD 1 & 2 Directives), for example, limit the deductibility of interest and requires more precise management to optimize the tax situation. PE’s are also potentially impacted by the OCDE recommendations on transfer pricing.
The various financial regulations, including EMIR with its recent “refit” or PSD2, Basel IV, MiFID2, etc. ... undoubtedly have a huge impact on daily management.
Political and economic interferences impact us all (e.g. Brexit, Sino-American trade war, embargoes, etc...).
IT developments enable technical advances, automate and robotize processes, to offer more powerful predictive analytic solutions and better performing decision-making tools. Strengthening internal controls backed by automation frees up time for higher value-added tasks
The staffing of our teams (for treasury roles) is also a problem we are both facing when the necessary skills change and evolve. More agile profiles, more “technological” expertise and more diversified resources are needed.
Relatively new functions and new roles
The role of modern corporate treasurer remains relatively new if you think about it (i.e. it is less than 40 years old). However, the function has evolved incredibly over the last decade. This evolution can be shared with FOs and PEs. If PE’s have entered version 3.0 of their evolution (according to LPEA); corporate treasurers are often considered to have entered the 4th version of their evolving role. The job of corporate treasurers is today broader and more complex than it was ten years ago. Usually, the relatively small sizes of our structures requires more efficiency and ingenuity to succeed and properly manage our treasury activities. When times become tough for all, every single euro saved counts and it is important to ensure that by reducing risks and financial costs. Fortunately, technology can be an enabler for more productivity and better efficiency in treasury.
Eventually, the management of a private equity fund is not so different from that of a company in terms of treasury tasks. The level of sophistication can vary from category to category. However, the problems faced are similar and require certain technical expertise. What brings us closer should also unite us and push both communities to cooperate and to collaborate more in future. Luxembourg is a fantastic place for fostering such collaboration and potential co-creation with our peers from private equity funds and family offices. As Chairman of ATEL, I hope we will be able to further develop our cooperation in the years to come.
By François Masquelier,
Chairman of ATEL