Seeking diversified short-term investment options in complex markets

Over the past decade SEEK, a Melbourne-headquartered employment marketplace, has experienced rapid domestic and international growth. It was time to optimise its multi-currency investments.

The challenge
Rapid international growth and the build-up of surplus cash in complex markets created short-term investment challenges for SEEK’s treasury team.. Today, the company is present in 18 markets across Asia Pacific, Africa and South America.

While this growth is fantastic for the company, it has created some interesting challenges for SEEK’s centralised treasury team in Australia. As Malcolm Andrews, Group Treasury Manager at SEEK, explains: “Many of the markets we are present in, such as Brazil, China and South East Asia, operate strict currency controls that make it difficult for us to bring any profits home. This leaves us with significant levels of surplus cash trapped in these countries.”

The issue is especially acute in China, SEEK’s largest overseas market. “Traditionally our business in China has invested most of our surplus cash with domestic Chinese banks in term deposits,” explains Andrews. “However, with our revenues in China growing, we wanted to strategically diversify our investment portfolio and ensure compliance with our treasury policy, mitigate concentration risk and optimise yield pick-up.”

The solution

After an evaluation of the investment landscape in China, SEEK’s treasury team selected China International Fund Management Co., Ltd. (CIFM) to be its main provider of short-term investment solutions. CIFM is the joint venture in China between J.P. Morgan Asset Management Limited and Shanghai International Trust Co.

While yield is not guaranteed, CIFM’s solution targets an even more competitive investment return because of the tax advantage its funds can bring. “When we invest in bank deposits, there is a tax that is applied to any yield made on deposits in China,” says Dart. “This reduces the return on investments and adds additional complexity because of the need to account for the tax and work with the Chinese tax authorities. There are no income taxes applied to any fund in China, which means higher effective returns and fewer complexities, which is a big bonus for us.” Solidifying SEEK’s decision to work with CIFM in China is the ability to access liquidity when needed. “SEEK is very active in the mergers and acquisitions space and because of this, often needs access to liquidity quickly, which CIFM’s solution provides,” says Dart.

This is also a reason that SEEK uses J.P. Morgan Asset Management’s AUD denominated local liquidity product in Australia. “The big-four banks in Australia dominate the short-term deposit landscape, but they are mainly focused on term deposits of two, three and six months,” explains Dart. “This doesn’t work for us because of our cash requirements and this is where J.P. Morgan Asset Management step in, providing competitive yield and same-day or next-day access to cash.” With SEEK enjoying the benefits offered by J.P. Morgan Asset Management’s liquidity solutions in some of its key markets, there is a desire to extend this relationship further. “We are keen to work with J.P. Morgan Asset Management in every market they are present where we have trapped cash,” says Dart. “They are an obvious choice because they provide great diversification and are competitive when it comes to yield.”

Best practice and innovation

The solution showcases the ability of J.P. Morgan Asset Management to provide cash management solutions for multinational companies operating across different markets and regions. Working with CIFM and J.P. Morgan Asset Management provides SEEK with the security and liquidity it needs with competitive yields and the ability to manage cash across various markets. “It was a fairly easy decision to select CIFM,” says Jeff Dart, Group Assistant Treasurer at SEEK. “The investment solution provided was very conservative, but still delivers a very competitive yield rate, which is in line with our investment policy.”

Key benefits

• Access to J.P. Morgan Asset Management’s cash management resources and diversified short-term portfolios

• The ability to earn attractive and competitive yields but not at the expense of liquidity and security

• Immediate access to cash when needed, which helps when financing mergers/acquisitions

• Tax advantages over bank deposits from fund investments in China

• J.P. Morgan Asset Management provides the opportunity to implement comprehensive and consistent cash management solutions across various markets under one umbrella

The opinions and views expressed here are those held by the author at the date of publication which are subject to change and are not to be taken as or construed as investment advice.

The article was first published by Treasury Today Asia in March/April 2018.