MyTreasury: A Quantum Leap for Fund Management – Justin Meadows
Treasurers are demanding better visibility of exposure across their money market investments, accounting for a sharp rise in interest in the benefits of portals. But, as MyTreasury co-founder and CEO Justin Meadows explains, many providers fail to deliver on their promise of transparency, security and trade confirmation.
In an operating environment where yield has taken a back seat to security and cash has consolidated its position as king, it is unsurprising that institutional money market funds emerged on the post-crisis financial landscape relatively unscathed.
But the credit crunch was a game changer for investors and funds alike. A focus on cost reduction, diversification, credit control and risk management within treasuries of all sizes and sectors contributed to the longer-term legacy of the downturn and continues to dictate behaviour. Investors are now far more focused on knowing where their money is at any particular time, leading to a gradual but fundamental shift in the way in which money market funds are managed.
"The time for portals has arrived," declares Justin Meadows, co-founder and CEO of MyTreasury. "What's more, the push is coming from treasurers rather than providers, signifying a fundamental behavioural change over the past 12 months."
Meadows has witnessed this demand and its drivers first-hand. He saw a 30% growth in assets being invested through his portal during the first three months of 2011 alone, an upward trajectory that continues to steepen.
"It's not particularly surprising," he says. "Treasury departments are under significant budgetary pressure, being pressed to deliver more for less. The operational efficiencies you gain through electronic trading and integration with existing systems, cutting out the manual booking of trades and that sort of thing, is a godsend for them.
"Also, because of issues surrounding credit risk there is a real emphasis on diversification. If you're not using a portal, getting out to each fund individually and trading one-to-one, with an increasing number of counterparties, makes tracking where you are from a credit perspective an arduous undertaking. All of these factors are pushing treasurers towards portals."
Push for clarity
While recognition of their value may be growing, Meadows continues to detect a high degree of confusion surrounding the fundamental differences between the portal models; omnibus and full-disclosure. This lack of clarity is something that his team has sought to rectify in conversations with treasurers from across the corporate universe, although he acknowledges that it is not always in his rivals' interests to do the same.
"An omnibus portal opens the account on behalf of the investors, and the investors trade on it," he explains. "The investor may have their name on the account, but it is set up and owned by the portal or its clearing agent - the investor is only the beneficial owner of the shares, not the legal owner. I've seen some treasurers go quite pale upon being informed of that fact. Also, people engaging in omnibus trading don't necessarily become authorised signatories on their own account. If the portal gets into difficulties that can pose real problems should they want to remove their money quickly."
Another issue, applicable to some full-disclosure models as well, is the necessity to give delegated authority to a third party at the portal to trade on one's behalf, which introduces serious risk issues. Meadows is equally damning of the 'grey area' where portals claim to operate on a full-disclosure or 'direct' basis while doing anything but. This includes platforms that inform the fund of the end investor's identity while still fully owning and operating the account, and others that practise direct settlement but not investment.
The practice of platforms not disclosing their pricing structures, charging different funds different amounts while being authorised to provide investment advice to investors, is another murky art that the CEO believes gives the industry a particularly bad name and calls into question whether portal operators always have the best interests of their end-users at heart.
A new way of thinking
"Our proposition is very clear," Meadows declares. "We don't open accounts on behalf of our investors, we will never accept instructions from them to be authorised traders on their accounts and we deal with funds with complete transparency. This is completely unambiguous; the investor trades in exactly the same way they would do by phone or fax on an individual fund, only through a single portal. All of our trading is done by SWIFT messaging and because of that we never have to place a trade on behalf of the investor. That is a genuinely groundbreaking development and makes us unique in the field."
The early days of MyTreasury's development perhaps best distil what differentiates the platform from other services on the market. It all stemmed from a conversation that Meadows had with the former European group treasurer of pharmaceutical manufacturer Warner-Lambert. "He was frustrated that every time he came to do his money market investments it involved a pile of faxes, emails and phone calls," Meadows says. "He could only look at a tiny number of things that were out there and there was no means of getting complete visibility."
This planted the seed for an ambitious project that eventually led to a meeting with the European Commission. With ambitious initiatives such as the Financial Services Action Plan and Lisbon Strategy only recently launched, the idea struck a chord in Brussels and Meadows received €1.3m R&D funding. Soon the corporate treasury departments of SAP and RTL had come onboard as dedicated partners - both remain on the system to this day - as did a user group of 34 organisations, ranging from mid-size European players to global giants such as Honeywell and HP. By the end of development, more than 200 corporate treasurers were participating. There was almost as much interest among those looking to acquire and distribute the system, a race eventually won by ICAP in 2007.
"We spent €1.3m of taxpayers' money, took two years and involved a vast number of organisations," Meadows chuckles. "If we can't come up with something truly valuable after all that we should be ashamed of ourselves."
By treasurers, for treasurers
But investment, time and effort are par for the course when developing any new platform. The unique factor here was that MyTreasury had been developed by treasurers, for treasurers. "That was absolutely crucial," Meadows says. "The other major providers are drawn from either software suppliers or the fund industry. We sat down and found out how treasurers wanted to work, asked about their workflow and business processes. They needed something 100% direct, automated and without us in the way of their relationships with the funds. It meant we were able to create a truly intuitive and easy-to-use solution."
From the very start Meadows made it a company mantra that MyTreasury must never require a user manual, and it is something he is sticking to even as the platform continues to add new functionalities. Already the only platform to incorporate every European money market fund, MyTreasury will be launching term deposits capability in June, certificates of deposit in September and, in an industry first, combined foreign exchange trading in the first quarter of 2012. Commercial paper will follow in June 2012, and all will be integrated into the existing system.
Having started as a portal exclusively dealing with offshore money market funds in Europe, MyTreasury has since expanded into Hong Kong, China and Singapore, and a launch in Australia is imminent. But expansion in the US seems to most excite Meadows, with its 16 largest institutional funds, accounting for some 92% of the total, already committed to coming onboard.
"The penetration of portals over there is quite high," he acknowledges. "Familiarity with the concept will work in our favour, but it also means a lot of incumbents in place. We'll have to take those guys on, but I'm relishing the challenge."
Expansion into new geographies and functionalities might suggest that Meadows and his team will be distracted from their traditional base, but the scope for growth in Europe remains vast; it's just a question of getting the message out there.
"Our hit rate is phenomenal," Meadows says. "If we actually get in front of a treasurer and demonstrate what the platform can do, in excess of 90% take it up. They tend to be a fairly conservative set - it's an admirable trait in anyone charged with guarding your company's cash - and change does not always come easy. There's also a fear it might affect the relationship with your fund provider, but we have deliberately built in a number of features such as instant chat that, if anything, get you closer.
"We've never had an investor leave the platform and that says it all really."