Paul Travers – Director, KPMG.
The annual ACTA conference is packed full of traditions while also exploring news ways to improve our understanding of what being a Treasury means. One tradition we have developed over the past three conferences is presenting the views and approaches to treasury from around the world through a series of interviews.
The approach we have taken is to use a consistent set of questions/theme so we can see trends develop over time, while refreshing the questions each year to reflect the ever changing challenges and opportunities Treasurers are faced with. To date we have heard from treasurers based in Auckland, Chicago, London, Singapore, Jakarta and New York representing corporations operating in energy, food manufacturing, transport, infrastructure and media.
This year we had the opportunity to speak with two treasury professionals, Johanna Hyttinen, Deputy Head of Global Treasury Unilever, based in Zurich and Sunil Mody, Managing Director Investment Management, Morgan Stanley based in New York.
This year we also had the privilege of receiving, in person, Richard Humphries, Global Treasurer at Flight Centre, perspective on the interviews and the topics covered, his insights helped us move through the topics we discussed with our two interviewees.
Your role as Treasurer
Both interviewees discussed how the traditional approach to managing risk has continued but the skill they increasing use is the ability to communicate and work with leaders across the whole business to identify and manage risks, often at their source rather than just using capital market and hedging transactions.
Johanna reflected on her transition from investment banking to being a treasurer and the benefit of having that knowledge of capital markets being applied to their fund-raising efforts, however, this has become only a part of her ongoing role/responsibilities. She found she would be speaking as much about accessing and managing flows of funds across the business as the impact of market moves on the underlying business. Most recently the challenge has been realigning the approach and pricing of capital internally to reflect the shift up in interest rates and the high likelihood these rates will not return to levels witnessed in the recent past. Her responsibilities have also extended to addressing their insurance, she commented how similar the approach to managing risks using insurance was to treasury risk management, in particular how similar it is to work with insurance providers and banks.
Sunil, who is responsible for supporting their funds to develop hedging strategies and source capital market structures, reflected that he was being asked to focus more on interest rate risk management than any time in the past decade, with funds seeking both relief from the surge up in interest rates and immunization from any further potential surges.
Is your home market different to everywhere else?
The geographical spread of Unilever’s business across 190 countries, makes their treasury focus not on one home market but across many jurisdictions. Coming with this spread, which is managed centrally they have 22 nationalities across their team of 25 treasury professionals. Interestingly, they formerly operated through 4 regional treasury centres but 4 years ago brought all the functionality back to Switzerland
– a key driver being developing a center or excellence and taking advantage of automation. One challenge has been maintaining contact with the underlying businesses, she addresses this by having 4 members of her team as treasury business partners whose responsibility is to maintain that contact facilitated by lots of travel.
The response provided by Sunil was of interest as he spoke of how the impact of COVID facilitating remote working and meetings being adequately conducted by zoom/teams removing the need to travel to the financial centres combined with global growth beyond the United States has removed the dominance in the financial market of the US, in particular New York and Chicago as the financial centers. The political and social environment has also not helped the US position as a financial center. Interestingly Sunil went on to talk about how this trend has also changed where financial professionals are operating from, they are moving beyond the traditional centers of New York, Chicago, Los Angeles and San Francisco and gravitating to other cities, such as Miami, Boston, and Nashville.
The optimal skill-set for Treasury
The discussion on skills with Johanna did not head towards the areas that those outside of treasury would associate with treasury, but focused more on the treasury team being flexible i.e. problem solvers, and those showing a willingness to get involved. It remains important to show a commitment to manage risks effectively, Johanna used the term, ‘Treasury matters’ and to be passionate about treasury. Johanna indicated that those in treasury play a key role across the organisation, describing ‘ treasury as the plumbing of an organisations (I often like to use the analogy that treasury manages the blood in the body – it needs to keep flowing …), you do not notice when it is going well but it gets lots of attention when it does not.’
The need to be able to understand markets and complete analysis effectively is a given, Johanna looks for her treasury team to do that efficiently and effectively.
Finally, having the ability to be an advocate is also critical – need to get the attention of business, help the business understand the importance of addressing the treasury risks and develop solutions for their challenges – the treasury team needs to be a good partner.
Johanna also looks to bring in people to treasury from across the organisation for a time, this provides her a group of people across the organisation that ‘get treasury’ and help facilitate treasury activities. The move to incorporate people from across the business in treasury has helped her achieve another goal, diversity, as illustrated by the wide range of nationalities and cultures represented in her treasury team.
With Sunil, we discussed the way into treasury, he described the traditional approach being to attend an established University, join an investment bank/major consulting firm, then move onto a treasury role. But this is changing with an increasing focus across different aspects of technology/computer science, i.e. artificial intelligence, digital infrastructure, fin tech… being combined with the traditional analytical skills typically associated with working market/treasury.
Current market challenges/opportunities
Joanne spoke about how she is having to help the underlying businesses understand that the interest rate environment has changed and it is highly likely interest rate levels witnessed during COVID would not return and their business plans/cases need to reflect the increased cost of capital. She describes herself as the bringer of bad news after being able, for a number of years, to provide a decrease to the business’s interest cost – this cost is no longer just another line item, but is becoming a more significant expense. It is important that the business realigns their business cases to reflect the current market interest rates and not pine after what is unlikely to be there again, at least for some time.
Sunil said that time is now being increasingly taken up with assisting the various funds manage their interest rate risk. The interesting aspect of this change, Sunil commented on, was that it did not come from Sunil encouraging them to manage this exposure but rather the funds seeking help on how they can mitigate the impact of both the volatility and the surge up in interest rates. This is big change from before when interest rate risk management was an afterthought, as rates were low and central banks keeping them there, this did not require much attention. The pace and magnitude of the change in interest rates across all the major market is what has caught many by surprise. Interest expense has become a driver of business cases/investment decisions rather than being just another expense item. The wide range of outcomes and the decreased conviction on where to next is leading to far more time, energy and analysis being applied to interest rate risk management.
Impact of Technology
Sunil believes the benefit of technology in the past couple of years has come at a personal level, changing the way we interact and work, not just with the move to meeting through Teams/Zoom, but having the ability to work remotely accessing all the technology driven tools necessary to be effective. This effectiveness is also helping our work / life balance and facilitating an ability to work remotely. The interesting thing is that now the way work in the office, in particular the tools we use, are the same as how we work remotely. However, this approach of interacting through technology and the efficiencies it has provided also creates a challenge, the challenge to develop strong personal relationships, that only come with face to face time. The challenge is not just getting face to face but finding the time to do so.
AI and machine led forecasting – this could be the opportunity to improve cash flow forecasting.
Johanna is looking for technology to improve the way they operate, for instance looking at how artificial intelligence and machine learning can assist with meeting one of treasury’s major challenges, it could provide an opportunity to develop an effective approach to cash flow forecasting. However, this optimism is combined with a degree of nervousness. New technologies are coming with lots of promise, but the trick will be how do we incorporate these new systems and apps into the underlying system and making sure the data is clean. Cleansing data is not ‘sexy’ but it is crucial and not getting this right will hinder one’s ability to use the new technology on offer, time is needed to address this effectively.
New world order
No one event has dominated their focus, but the combination of all these events. In particular the strong dollar which has come from these crises has led to increased currency volatility leading onto regulation as countries look to manage their currencies. This has created a challenge for them to source the FX they need to support their global operations. Johanna expects this to continue, particularly as we are potentially entering a more difficult global macro-economic environment.
Learnings of how to address these challenges have come more from partnering with the business, seeking to understand how their supply chains and procurement are impacted and the potential to realign them, these provide more effective solutions than just using FX products.
Work From Home
Both Sunil and Johanna stated that hybrid working environments are here to stay and have enhanced work/life balance and also provided their teams a chance to manage how they manage tasks. They both opined on how the stigma attached to working from home has gone and it has provided an opportunity to build more trusting relationships with their teams. Johanna in particular discussed how her team worked together to develop an effective working environment – citing the example of having designated days in which the whole team was present and then taking advantage of this by ensuring work which would benefit from a collaborative environment being the focus – this has actually strengthened the team’s ability to come together to learn, develop and develop connections across the treasury team.
She commented that before COVID there was a strong belief that trading needed to be conducted in an office environment and that the controls required to support this activity could only be found in an office – this belief was debunked, however, this was only achieved with a robust IT environment which could be readily accessed remotely, in a secure manner. We discussed how if COVID had occurred 10 or even 5 years prior this change may not have been able to take place as the tools (and their ability to interact) we take for granted now was not possible.
Closing comments
Johanna left us all a challenge to be curious with a view to risk aversion, while always being on the lookout for the free lunch. I left both Johanna and Sunil with an invitation to join us at future conferences so as to continue to provide us their valuable insights
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