Low-interest rates and the “work from anywhere” environment have led to the rapid adoption of cloud-based investment systems and web-based services in the institutional liquidity space. This permanently changes the landscape and creates an ecosystem that enables new cash management functionality.
As corporate treasurers moved to work remotely during the COVID-19 pandemic, the race was on find cloud-based solutions to support their everyday corporate activities, including investing and managing their very large money market holdings. The main beneficiaries of this effort have been virtual Treasury Management Systems (TMS), money market fund supermarkets (also known as “portals”) and those liquidity fund managers and transfer agencies with direct-digital connections.
All these entities are connecting to make the corporate money market investing experience vertically integrated and extremely quick and efficient. This presents new frontiers for all players in liquidity markets, including new payment processes, digital account services and real-time execution and data notifications across the globe.
Revolutionizing payment processes
The payments process has been historically slow and manual, involving a long chain through banks and accounts payable. That chain is now undergoing a technological transformation, making it more direct and cutting down the payment cycle. Previously the treasurer would, in effect, carry out an omnibus redemption—that is, redeeming a large block out of the short-term investment into cash to then satisfy accounts payable to pay vendors. Today, treasury departments can make individual payments out of the liquidity fund, bypassing the custody banks and the potential five to a 15-day holding pattern, or even directly transfer shares of a money market fund to another as payment.
Digital account services
As the move to “work from anywhere” has all but eradicated the ability to support paper-based processes, more account services in the liquidity space are turning digital. For example, documents related to account onboarding, account maintenance and identity services can be uploaded and then processed using Optical Character Recognition (OCR) technology to be stored on a digital ledger. The data can be tokenized, verified and permissioned by the treasurer, to then be shared with other entities. This significantly reduces the onerous paper trail for all parties, saving time and increasing accuracy. The account owner and the fund manager also both benefit from longer periods of invested balances.
Real-time data impacts
This digital transformation also allows for real-time processing, trade execution and data notification. With a direct digital connection to liquidity providers and the transfer agency, clients and fund managers can transact and maintain books and records in nanoseconds. Fund managers and custody banks have access to real-time flow data, helping them to manage their operations and regulatory compliance needs. Real-time large trade notifications can help improve an actively managed fund’s performance by reducing cash drag or overinvesting.
A predictable cycle
As relatively low-interest rates are likely to persist, corporations will remain keen to convert cash to liquid products. Parties in the liquidity investment chain will continue to pursue ways to reduce cost frictions and inefficiencies in the system while offering clients new services that are beneficial to both parties. History suggests that technological innovation at these nadirs is no coincidence, and those clients and firms that embrace these advancements tend to fare better when rates eventually do increase from zero.
How SS&C can help
SS&C Global Investor and Distribution Solutions (GIDS) is the world’s largest mutual fund transfer agency and provides services to many of the leading institutional money market fund sponsors. Liquidity management is a key module of SS&C Lyric—SS&C’s new front-to-back technology platform designed for asset managers, financial advisors, intermediaries and retirement solutions providers. Lyric leverages distributed ledger technology, AI and machine learning—creating a competitive advantage that provides an industry-leading and transformational global solution.
Written by Nick Doyle
Senior Director, Product Strategy