Investments & Debt - Fundamentals¶
What It Is (General)¶
Investment and debt management in corporate treasury involves deploying excess cash into interest-bearing instruments while maintaining appropriate liquidity and security, as well as managing debt facilities and intercompany loans. Common instruments include term deposits, money market funds, overnight accounts, and interest-bearing bank balances.
Investment Types & Strategies¶
Companies invest cash by balancing three core dimensions: risk, liquidity, and return. Different investment types produce different outcomes across these dimensions:
The Investment Triangle¶
| Dimension | What It Means | High Performers |
|---|---|---|
| Capital Preservation | How safe the principal is - likelihood of getting back what you put in | Bank deposits, government securities, AAA-rated MMFs |
| Liquidity | How quickly/easily converted to cash without losing value | Bank deposits, money market funds |
| Yield | Return or interest earned | Time deposits, treasuries, repos |
Higher yield generally comes at the expense of either liquidity or capital preservation — a core trade-off in treasury investing.
How Treasury Teams Segment Cash¶
Treasury teams segment cash according to company needs: - Operational cash → High-liquidity, low-yield instruments (bank deposits, overnight accounts) - Longer-term cash → Higher-yield investments (time deposits, treasuries, repos)
Common Investment Types¶
| Type | Characteristics | Liquidity | Yield |
|---|---|---|---|
| Bank deposits | Backed by institutions/guarantees | High | Low |
| Money Market Funds (MMFs) | Invest in short-term, high-quality instruments; can score high on capital preservation | High (daily) | Variable |
| Time deposits | Fixed maturity, fixed rate | Low (locked until maturity) | Medium-High |
| Treasuries | Government-backed securities | Medium (tradeable) | Medium |
| Repos | Repurchase agreements | Medium | Medium-High |
Risk Management & Investment Policies¶
To ensure capital is both protected and optimally deployed, treasurers establish investment and counterparty risk policies. These policies set limits on:
1. Counterparty Exposure¶
How much cash can be held or invested with any single bank/institution, to reduce loss risk if that counterparty defaults.
How limits work: - Percentage-based thresholds - e.g., up to 10% of total cash with A-rated banks, or 20% with AA-rated banks - Absolute caps - Fixed dollar/euro amount as added safeguard - Whichever is lower prevails - Combination ensures diversification scales naturally
Example policy: "No more than 10% of total invested assets OR €50M with any single A-rated counterparty, whichever is lower."
2. Credit Rating Requirements¶
Minimum required credit ratings from agencies (S&P, Moody's, Fitch) for banks, funds, and issuers to qualify for deposits or investments.
3. Diversification¶
Spreading funds across multiple banks, money market funds, or instruments to avoid concentration risk.
4. Tenor and Instrument Types¶
Defining maximum maturities and permitted investment classes to match liquidity needs and risk appetite.
Credit Ratings Deep Dive¶
1. Bank/Counterparty Ratings¶
Purpose: Assess the creditworthiness of the bank — the likelihood it can meet its obligations.
Key characteristics: - Assigned by S&P, Moody's, and Fitch - Long-term rating (e.g., AA-, A+, BBB+) - Short-term rating (e.g., A-1, P-1, F1) - Applies to the legal entity, not necessarily the parent holding company - Note: A bank may have different credit ratings across branches
In practice:
"Counterparties must have a minimum short-term rating of A-1 (S&P) / P-1 (Moody's) / F1 (Fitch)."
2. Fund Ratings (Money Market Funds)¶
Purpose: Assess the credit quality, liquidity, and stability of the fund's portfolio and management.
Rating types: - Credit Quality Rating — e.g., AAAm (S&P) or Aaa-mf (Moody's), meaning the fund invests in high-quality short-term instruments - Market Risk / Stability Rating — measures volatility or NAV sensitivity (especially for variable NAV funds)
Why it matters: Even diversified MMFs can carry risk if they hold lower-quality commercial paper or have a longer weighted average maturity (WAM).
In practice: Treasury policies often require MMFs to have the highest possible fund rating (e.g., AAAm or equivalent).
3. Instrument-Specific Ratings¶
Individual securities carry ratings, especially for direct investments (not via funds):
| Instrument | Rating Focus |
|---|---|
| Commercial paper | Short-term corporate debt; rated for credit risk (e.g., A-1, P-1) |
| Treasuries | Backed by sovereign governments (e.g., U.S. = AA+) |
| Agencies | Government-sponsored entities (Fannie Mae, Freddie Mac) have their own ratings |
Treasurers look at both issuer rating and instrument rating — though for government securities, the sovereign rating usually suffices.
Instruments vs Bank Accounts (Product Insight)¶
A key distinction for treasury systems: investments are not bank accounts — they're "instruments" that emit cash flows.
"They're little cash flow emitting machines... Everything's cash flow." - Gurjit, Palm
Why This Matters¶
| Aspect | Bank Accounts | Investments/Instruments |
|---|---|---|
| Position | Balance from transactions | Current value (principal + accrued) |
| Forecasting | Category-based, variance analysis | Term-based: maturity date → principal return |
| User mental model | "This is where my money sits" | "This is money I've deployed" |
| UI needs | Transaction list, categories, reconciliation | Maturity dates, rollover actions, value updates |
| Intercompany | Sweeps, transfers | Not applicable (external counterparty) |
The Common Pattern¶
All treasury instruments share a pattern: 1. Position: What's the current value/balance? 2. Forecast: What cash flows will this generate?
This applies to: - Investments: Time deposits, MMFs, notice accounts - Debt: Term loans, revolving credit facilities - IC Loans: Lender and borrower positions
Forecasts from Instruments = Confirmed Forecasts¶
Unlike operational forecasts (which need verification from budget holders), instrument forecasts are based on contractual terms — they're inherently confirmed.
"If they put in a debt or investment, they know what it is and when it's going to happen. This is their stuff." - Jennifer, Palm
Debt Management Fundamentals¶
Debt Structures & Complexity¶
Corporate debt comes in various forms, each with its own complexity:
| Type | Characteristics | Complexity |
|---|---|---|
| Bonds | Fixed payments, defined terms | Medium |
| Term Loans | Amortizing or bullet, can have floating rates | Medium-High |
| Syndicated Loans | Multiple lenders, multiple tranches, different rates per tranche | High |
| Factoring | Selling receivables for immediate cash | Medium |
| Revolving Credit | Draw and repay within limit | Medium |
Accrual Calculations¶
Even when not servicing debt (making payments), companies must calculate accruals monthly for accounting purposes.
Key components: - Principal - Outstanding loan amount - Interest rate - Fixed or floating (e.g., Euribor + spread) - Penalties - Late payment charges, typically percentage on unpaid capital - Withholding tax - Tax withheld at source on interest payments
Complexity factors: - Floating rates require updates when benchmark changes (mid-period splits) - Multiple tranches with different rates - Day count conventions vary by instrument
Avramar's Process (Source: 2025-07-09) Monthly accrual calculations for multiple loans with: - Floating rates (Euribor-based) - Multiple tranches per syndicated loan - Penalties on unpaid principal (2.5% rate) - Three output views: Accounting, Cash Flow, FNA
Collateral/Securities Tracking¶
Loans often require collateral. For complex organizations:
Common collateral types: - Real estate (warehouses, offices) - Equipment and machinery - Inventory (including unique types like biomass) - Receivables
Challenges: - Same collateral may back multiple loans - Merged companies create overlapping asset pools - Revaluation schedules vary (3-6 months for inventory, annual for real estate)
"We have many different securities... one type is a [fish farm]... building warehouse and the fish farms... also the boats... and biomass." - Marianna, Avramar
Three Reporting Views¶
Treasury teams need the same debt data presented differently for different stakeholders:
| View | Purpose | Key Metrics |
|---|---|---|
| Accounting | Journal entries, accruals | Interest accrued, withholding tax |
| Cash Flow | Actual payments | Principal + interest due, penalties |
| FNA (Financial Analysis) | Management reporting | Total exposure, maturity profile, rate risk |
What It Means for Our ICP¶
How Treasury Teams Think About It¶
Treasury teams follow a clear hierarchy when evaluating investments:
"Security is always the most important... for a lot of people it's flipped, people think yield is most important, but actually it should be security itself." - Tom, Personio
The Investment Hierarchy: 1. Security - Counterparty risk, credit ratings, deposit protection 2. Liquidity - Access to funds when needed 3. Yield - Return on investment
Typical Processes & Timing¶
- Daily: Money market fund NAV tracking, overnight account management
- Weekly/Monthly: Credit rating monitoring, investment reporting
- As needed: New deposit placements, maturity decisions
Personio's Investment Types (Source: 2025-10-21) - Term deposits (fixed maturity, fixed rate) - Money market funds (daily NAV, variable return) - Overnight accounts (request-based liquidity) - Interest-bearing bank balances
Tools They Use Today¶
- Google Sheets - Manual investment tracking with rate, maturity, credit rating fields (Mentioned by: Personio)
- Bank websites - Source of credit ratings (each uses different terminology) (Mentioned by: Personio)
- AI agents - Attempted automation for credit rating scraping, unreliable (Mentioned by: Personio)
- Bloomberg - Industry standard but expensive (Mentioned by: Personio)
MMCs (Money Market-Like Products)¶
ON's MMC at UBS (Source: 2026-02-18) - Similar to a money market fund — invested amount that doesn't change frequently - Interest reinvested monthly (previous month's interest becomes principal) - No maturity date — can withdraw but typically don't - Separate from term deposits — can't be tracked in same FTD report - Amanda: "We don't really move. Like, we don't change that much, we don't really invest more, or like, withdraw from the fund"
How They Talk About It¶
- "Term deposits" / "FTDs" - fixed-term, fixed-rate investments
- "Money market funds" - NAV-based, daily liquidity
- "MMCs" - money market certificate-like products (ON terminology)
- "Overnight accounts" - interest-bearing, request for withdrawal
- "Credit ratings" - S&P, Fitch, Moody's (short-term and long-term)
- "Counterparty risk" - exposure to bank default
- "Deposit protection" - government schemes (e.g., German deposit protection)
- "Maturity ladder" - visualization of when deposits mature
"If we have that the cash balance, then the forecasting piece linked to each bank account... if we do have a maturity, that you actually see that cash flow showing as a forecast value there as well. That would be awesome." - Tom, Personio
In-House Banking¶
Levi's Perspective (Source: 2025-12-11) An in-house bank is a dedicated entity within a company that handles all financial coordination for affiliates. Key components:
Structure: - In-house bank entity at top - Supported by virtual account structure underneath - Can be layered: by affiliate, by entity, or by customer
Functions: - Payment factory - Centralized team that pays in behalf of affiliates - Receipt in behalf of - Collecting payments on behalf of affiliates - Concentration of cash flows for better visibility and control
Geographic centers: Luxembourg, Belgium, Switzerland, Mauritius are popular for tax treatment
Benefits: - Concentrated data on all payments and receipts - Enables customer-level cash application tracking - Better control over payment timing
"An in house bank is quite sophisticated and not a lot of people have it... I've been with two companies that have it, and I built it." - Dette
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