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Wednesday, 17th April 2024
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Money & forex markets: changed utterly Back  
Twenty years ago, corporate treasury was in its infancy, not just in Ireland, but worldwide, writes Aengus Murphy, with most companies, including large ones, not having a corporate treasury function. Today, the landscape has changed considerably, with companies now having sophisticated treasury functions, and Ireland establishing itself as one of the leading worldwide jurisdictions for treasury outsourcing.
I am very pleased to contribute this brief article on corporate treasury management over the last 20 years - the lifetime of FINANCE magazine. Congratulations to Ken and FINANCE magazine in meeting this major milestone. My company, FTI, has paralleled FINANCE magazine over the 20 years, both being founded at the same time, playing pioneering roles in the development of corporate treasury in the IFSC and building successful businesses and reputations over those years.

Twenty years ago, corporate treasury was in its infancy, not just in Ireland, but worldwide. Most companies, including large ones, did not have a corporate treasury function. The corporate treasury management practice was very haphazard, with each company adopting its own style of solution. Nowadays, the corporate treasury is a standard corporate function in all medium and large companies and also in many smaller companies. The role of the corporate treasury in the organisation and in the business of companies has been well established.

Business dimensions
The corporate treasury now plays a more central and formalised role in the business and operations of companies, delivering treasury services to group entities, managing and performing the core treasury activities and managing the financial risks arising from the treasury dimensions of the business. The old debate as to whether treasury is a cost or profit centre has passed, with the treasury now generally regarded as a centre of expertise adding considerable value to the organisation.

Treasury management now receives much more attention at corporate management and Board level in companies. The significance of treasury type risks and the potential for these risks to impact results have become important business factors to be managed.

Most companies have now adopted the centralised treasury model, comprising a specialist dedicated team and with full global coverage of the companies' entities and businesses as the best practice standard. This is seen as bringing much more value enhancement to the company and much more control over the company's financial assets and liabilities and financial risks.

Technical treasury
There has been huge advance in technical treasury practice over the 20 years. The level of sophistication in treasury management is now extremely high. To meet demands in this context, treasury personnel are now professional specialists, usually with particular qualification in treasury management, gained from one of the many focused education programmes now on offer - the IACT/DCU Graduate Certificate in Corporate Treasury being a good example.

20 years ago, at least some of corporate treasury practice was based on dubious expectations, often involving large risk-taking, even aiming to overcome business trading difficulties through treasury trading profits. Not a winning game. Nowadays, the treasury focus is much more on risk reduction, cost reduction and enabling the company to meet budgets, forecast results or analysts' expectations.

Advanced solutions have been provided to corporate treasury mainly by banks and international tax advisors, especially in the areas of cash management and financing and tax structures. Derivatives, a feared term 20 years ago, are now part of the everyday treasury operations and the range of them has expanded dramatically. You can now get a derivative for almost any treasury requirement.

The funding and capital markets have really opened up to corporate organisations in this period, and they are now being used innovatively and aggressively by corporates to get suitable, good-cost funding. This is a major change from mainly straight bank funding 20 years ago. Companies are now comfortable with a variety of funding sources, from public bond issues, private placements, securitisations, MTNs, CP, etc. More and more companies are going the ratings route to enable them access these markets.

With the huge and unprecedented volatility in commodity prices in more recent times, especially oil based commodities, commodity price management has become a common component of the treasury management portfolio. The corporate treasury discipline is suited to the management of this now significant risk area for many companies.

Treasury technology
In the late '80s, treasury systems and technology were fairly rudimentary. In the interval, there has been huge development in systems and technology. Most companies now have a TMS installed. There has been major consolidation of the main vendors, with a couple of big providers emerging.

Treasury best practice
As mentioned, 20 years ago corporate treasury management practice was quite haphazard, with some dubious elements. While there are yet no definitive statements of treasury best practice, much work has been done in bringing a more consistent standard to models, governance, policies and practices.

Accounting and regulation
One of the major areas of change in the corporate treasury arena has been the extent of development of accounting rules and regulatory requirements. The FAS and IAS developments, especially FAS 133 and IAS 39, have had major implications for treasury management, not all of which have been positive. The spate of treasury type scandals, many of them huge in value, over the 20 years has led to much increased regulatory supervision of the treasury management functions in companies. SOX is a good example. Accounting, regulation and compliance have put increased demands on the treasury function.

Outsourcing
Outsourcing has been a major business change over the period. Concentrate on core business and skills and outsource everything else. Outsourcing has extended to corporate treasury with many international and global companies outsourcing some aspects of their treasury solution. Even though there has not been a flood of companies adopting this model, in FTI's case, its Managed Treasury business has increased four-fold in three years in terms of number of clients.

Corporate treasury in Ireland
Corporate treasury in traditional corporate Ireland has held its own. The larger companies of the late '80s and early '90s continue to have sophisticated, if small, treasury functions. Their practices would have kept pace with international developments. In addition, some Irish companies who have become very large in more recent times, such as Ryanair, Kingspan, now have well developed treasury solutions in place.

Based on the IFSC platform, Dublin still remains solidly as the world capital for outsourced treasury solutions. This is despite the higher corporate tax rate and the expiry of the IFSC regime, the disappearance of the earlier mainly tax based IFSC operations and the downsizing of some of the treasury operations of the global giants.

The continued success is based on Dublin's reputation for experience and expertise in corporate treasury management, the impressive pool of companies' treasury operations based here, the regulatory regime and the continuing tax advantage. Any company anywhere in the world considering an outsourced treasury solution will have Dublin on top of the list of possible locations.

After 25 challenging and exciting years in the corporate treasury business with FTI and previously with ESB, I have decided to retire, while continuing to have a more limited continuing relationship with FTI and I wish both FINANCE magazine and FTI continued success over the next 20 years.

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