Creating a sophisticated, cross-border liquidity solution
The massive online retailer craved a multi-currency liquidity strategy as its business expanded that would invest in short-term cash investment strategies, reduce risk exposure and more.

The challenge
Security and liquidity for cash investment are the priorities for this treasury department. As a new economy company, liquidity investment at JD is quite different from traditional industries, especially in terms of scale and frequency. How to expand more channels for cash investment within the scope of security and liquidity is always the concern. Currently, JD uses wealth management products (WMPs) from its different bank partners. When investing in deposits or WMPs, JD evaluates different criteria such as term, counterparty risk, yield and liquidity, which is a systematic process for decision making. Jeff Yu, Group Treasurer, explains, “Our treasury team also saw the need for broader, more innovative liquidity solutions, an outgrowth of concerns about WMPs, particularly. Overall evaluation and elaborate analysis is always a must when choosing products given the number of banks and products in the market; As our business grew both domestically and internationally, the absence of WMP equivalents in developed markets where we operate denied us a consistent global cash investment strategy.”

The solution

JD's treasury team was determined to include a cross-border liquidity solution covering both US dollar and renminbi. With the accelerating pace of globalisation and their own growth and expansion, JD wanted to establish a global cash investment platform for a diversified investment portfolio in mainland China, Hong Kong, Singapore and the US. A partner with seamless liquidity solutions across multiple countries was critical. “J.P. Morgan Asset Management’s global presence and resources, expertise in a broad range of investment capabilities and dedicated client advisors in the region were well suited to our needs,” recalls Yu.

The proposal was to invest in short-term cash investment strategies, including a US onshore government money market fund (MMF), an offshore USD liquidity fund, and a China onshore AAA-rated RMB MMF (T+1) to reduce risk exposure and expand current investment channels. The headquartered treasury team also needed an efficient, real-time snapshot of the onshore and offshore investments. Utilising one global online investment portal, the proposal offered a convenient real-time snapshot of their cash investment holdings in multiple countries.

Best practice and innovation

This project highlighted the team’s expertise and experience in delivering an innovative and creative solution to their treasury project’s components including:

• Setting up fund accounts covering major markets globally
  
  
• Setting up a global online investment platform that allows trades to be placed online. Account information, transaction history and enhanced reporting can be accessed across various currencies 24 hours a day, seven days a week
  
  
• Regularly conducting service reviews and market update discussions with investment partners to ensure smooth daily operations

Yu concludes, “The solution leveraged our investment partner's global reach, local expertise and robust credit and risk management processes. It will continue enhancing the efficiency of our liquidity management in various regions and across currencies. After reviewing various liquidity strategies, we now also have an optimal cash segmentation strategy. Finally, outsourcing our liquidity management, including credit and risk analysis, to a trusted liquidity partner has given our treasurers time for investment decision-making.”

Key benefits

• More time dedicated to investment decisions
  
  
• Increased returns of approximately 20% on offshore USD cash holdings
  
  
• Increased returns of approximately 10% on onshore RMB cash holdings
  
  
• Reduced counterparty risk
  
  
• Utilised partner’s liquidity experts to develop an enhanced cash segmentation strategy, giving exposure to broad range of liquidity solutions spanning 10 currencies and varied duration cash investment strategies (eg liquidity funds, managed reserves funds and short-term duration bond funds)

 The case study was first published by Treasury Today in December 2017.

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