“Career Insights: Treasury Management” by Ms. Jayna Gandhi, CFA

Speaker: Jayna Gandhi, CFA, Co-founder and Director, Quantmac Capital Solutions Pvt. Ltd

Moderator: Biharilal Deora, CFA, Director, CFA Society India

Contributed By: Vikrant Warudkar, CFA

Webinar notes for session “Career Insights: Treasury Management”

Treasury management is a specialized and coveted role in corporate and financial institutions which gives opportunity to manage huge amounts of money. This type of role gives you job satisfaction with high responsibility and also uplifts one’s esteem. Business model of the organisation, economic environment and below average risk tolerance sets the backdrop for treasury operations.  Treasury structures are dependent on roles like forex and interest rate operations. Role in treasury management rests on the tripod of macroeconomy, capital market structure of the country and industry structure of the organisation. 

Treasuries in India:

Barring a few cash rich debt free companies, mostly there are cash starved companies in India, given the developing nature of the country and the requirement towards huge investment in infrastructure. Hence, majority of treasuries are shouldering responsibilities of fundraising too. Borrowing programs of sovereign government and state governments set benchmark rates for the corporates to borrow from the open market which is difficult for lower rated companies. For cash rich companies, skills of investment and portfolio management are more important.

Treasury Types:

A higher number of opportunities are present in treasuries engaged in both the activities of borrowing and investing (lending) usually prevalent in financial, manufacturing and infrastructure sectors.  Being cash rich, sectors like FMCGs, IT, Pharma, Stock Exchanges, EPFO/Pension and insurance sector offer fewer opportunities, as their treasuries predominantly operate for the investment of surplus funds. Size of Treasuries for cash rich companies ranges from few thousand crores to ~ INR 40,000 crores (TCS). Banks, insurance, oil and gas sector companies also run large amounts of treasuries. In such treasuries, skill set of forex management is also required. In banks, sales side treasury team exists, which try to sell proprietary portfolios in the market to book profit. Bank treasuries offer most of the roles, so the freshers should target bank treasury first.

 Principles and Objectives:

Treasury management stands on principles of safety, liquidity and return. Funds need to be safe, should be available on the specified date and bring in returns. So the manager has to scout for the appropriate investment avenues which satisfy these constraints. This is where the contacts and networking skills are required.

Measurable KRA’s:

Operations in treasury are governed by KRA’s which look for minimisation of the borrowing cost and maximisation of the returns with constraints of liquidity i.e. liability funding and policy framework to have a clean audit report. The operations of the treasury directly impact the return on investment and valuation of the Company. Consistency in the performance is always desired.

The core functions of the treasury unit is to raise funds, currency management, risk management and hedging, and corporate finance by managing cash flows and budgets.

 Currency, Commodity and Forex Management:

Managing the currency risk of an organisation having foreign currency exposure to maximise the return governs the strategy. Moreover, any tactical strategy to take an advantage of the market situation gives edge over competitors. This requires skill sets of choosing the correct hedging/exposure tool (e.g. forwards/future/option/swap) and in-depth understanding of international finance and currency markets. One should have a tab on the factors affecting the currency markets.In companies involved in manufacturing or having exposure to commodities like Reliance and companies financing against gold, commodity hedging is a role of treasury.

 Exposure area:

Fundraising and resource mobilization predominantly operates in three buckets depending on the tenure of the instrument 1) Money market funds up to one year in the form of commercial papers and limits from banks, 2) Short/Medium/Long term funds in the form of bonds ranging from 1 year to 30 years or even perpetual bonds, and 3) Capital in the form of equity.Different regulations are applicable for these different instruments which require compliances. To carry out the operations smoothly the treasury team shall have a very good rapo with financial intermediaries like brokers and investment bankers. The objective is to minimise the cost of the funds being raised. Fundraising from banks requires the data to be arranged in the formats prescribed by banks. For debt market operations credit ratings are important. Other instruments available in the debt markets are debentures, NCDs, basel – III bonds and structured debts.

 Corporate Finance:

Corporate treasury stands on four pillars namely investments, cash flow management, asset liability management and budgeting. Investment committees take decisions on short term, long term and tactical fund investments, which are submitted for approval to the board. Cash flow planning deals with the tradeoff between liquidity and opportunity cost. It makes sure that the funds are available to meet the planned and unplanned out flows. Asset liability function takes care of the duration risk arising out of the difference in the maturities of the funding side and asset side. This is crucial for NBFC’s where GAP analysis is important. This needs to be reported to RBI (regulator) in specified formats. In banks, it takes care of SLR/CRR. The treasury has to plan the budget for the organisation to fund the projects based on the corporate financial principle of IRR/NPV. Budgets for monthly, quarterly, yearly are usually prepared. Budgets need to be submitted to different committees for approval, where negotiations do happen.

Not immune from RISK…

Both financial and non financial risks entail in treasury operations. Financial risk stems from factors like market, liquidity, credit and inflation. Market risk further entails currency, interest rate, commodity and equity. Whereas, non financial risk stems from operational risks arising from day to day operations like fat finger risk where a wrong information is keyed in the system. Externalities pose settlement risk, where trades confirmed are prone to fall short of delivery and get reported as unsettled resulting in the loss of opportunity. Compliance related risk is another non financial risk which requires systems to be updated in response to the frequent regulatory guidelines and new products introduced in the market. Error in designing models, for example assumptions or methods selected for valuation may result in losses.

 Types, Roles, Skills and ….

A typical treasury operates in three sections viz. front office, mid office and back office. Front office deals with decisions in respect to strategy, the mid office is responsible for compliance and risk management whereas the back office looks after audit, accounting, settlement and valuation.The different types of treasuries require different skill sets. A fixed income resource would hardly migrate to Equity as both have different perspectives. Equity looks for upside potential whereas the credit or fixed income looks to protect more down side.

Various roles present different opportunities to move across organisations or sections. Ethics, integrity and trust are the utmost requisites which get verified in reference check. Salaries in three sections are comparatively skewed towards the front office.

Career pyramid:

At the entry level technical skills such as accounting/analytical/financial modelling /commercial are appreciated more.  As one moves up the ladder from the bottom of the pyramid from a junior to senior level, changes in skill set are required from being a specialist to a generalist in order to manage people.

 Hiring the right people:

Preliminary screening is done on the basis of educational qualifications such as CA, ICWA, MBA,etc. Candidates are selected from colleges/campuses or from the open market for entry level. Corporate treasury gives opportunities to internal employees as well. Lateral hiring happens for senior positions. Front office resources are usually rank holders, high quality berries hand picked from premium institutes. Hiring happens by all possible methods and also lateral shift is possible. Good resources are also selected from accounting firms, intermediaries, broking firms and investment banks. In other countries there are roles like outsourced investment officers (OCIO). In these countries money management is outsourced, whereas in India money management is done internally. But the Indian treasuries depend on outside sources for market intelligence. Medium size companies in India have no internal expertise, so they rely on insights provided by experts on boarded by other advisory firms like the big four audit firms.

 Why CFA charterholders may be preferred?

A name with CFA designation is an added advantage. CFA program gives an edge from the perspective of valuation, and exposure to macros. Rigorous academic exposure to portfolio management, and portfolio construction makes good background for roles offered by investment side treasuries. Understanding of currency and forex management has differentiated CFA charterholders from masses. CFA charterholders are well known for equity valuation methodologies, practical considerations, and historical financial statement analysis. They are well versed with financial projections, return on capital metrics, cash flow analysis, capital budgeting and IRR’s. Areas of fixed income strategies, derivative strategies on interest rate and currency are known as well. Apart from CFA program, FRM also gives an opportunity to work in treasury for ALM or in front office.

Want to shift to treasury?

Someone who is willing to join the treasury from other roles, like credit analysts in a bank, can choose a path depending on her interest. One can start from joining course/training programs of FIMMDA/IIB. A treasurer must have an understanding of regulatory aspects of capital markets and sector dynamics. Studying the business model of the dream company would be useful for the treasurer to understand the cash flow management of the target. Knowing, the target company is debt free and having a sizable amount of investment surplus will give an idea about the skill set required. One may join CFA Society membership and start networking with fellow CFA society members who are already in the treasury side or have past experience of the role/industry. Attending relevant conferences and webinars will upgrade the knowledge of the market. One should always look for getting a foot in by giving second priority to the remunerations.

Way forward:

After being a renowned treasurer and knowing nuances of the operations, one would like to look forward to roles demanding more responsibilities. In the past the treasurers have made successfully shouldered responsibilities of positions like CFO, consulting/treasury advisors, fund raising and financial advisors, head of accounting firms etc. They have also made forays in intermediaries and broking firms, and investment banks. There have been lateral shifting opportunities across the industries e.g. from corporate treasury to banks or insurance treasury. There are roles in hedge funds, debt AIFs, and PMSs which require a skill set honed by a treasury veteran.

Link to the webinar- https://cfainstitute.org/research/multimedia/2019/career-insights-treasury-management