SMEs and startups in Hong Kong: How to seek higher yields on corporate cash

Challenges with corporate treasury and cash management for SMEs

Interest rates are at record highs. It is crucial for SME owners, chief financial officers (CFOs), and treasurers to invest corporate cash wisely to capture higher yields offered. 

However, the hunt for higher yield is not straightforward — and that is why some SMEs and startups might choose to leave idle cash and working capital in a current account, reasons include:

1. The need to accurately forecast cash flows to maintain liquidity

Many yield enhancement options, such as fixed deposits, have lock-up periods or early termination penalties. Therefore, finance executives must accurately forecast cash inflows and outflows to determine excess cash levels and how long they can be afforded to be locked away for. 

But forecasts are never perfect, so treasurers and CFOs often end up keeping quite a significant cash buffer to make up for any potential discrepancies.

2. SMEs' cash needs are underserved by traditional financial institutions

Small and medium businesses (SMEs) and startups use fewer banking services than big companies and multinational corporations, and therefore may not be seen as profitable by banks, so they might be overlooked, ignored or left with limited services.

3. The hunt for higher yield in cash management requires significant effort

Significant effort is required by finance departments to compare interest rate offers from multiple providers. 

This invariably leads to the splitting of cash across multiple banks, which is a time-consuming endeavour. It takes time to get corporate accounts set up, and even after onboarding the accounts, it is operationally tedious to manage multiple bank account logins and signatories.

Furthermore, splitting a business across multiple banks will mean that the corporate’s importance to any single banking entity is limited — which then impacts the level and quality of service and attention you can receive from each bank.

Venturing beyond fixed deposits, the plethora of corporate yield enhancement products can be unfamiliar to corporate treasurers and CFOs. For example, some of us may not know that there is an extra level of risk for Enhanced Money Market Certificates. These certificates are a type of structured product where the issuer combines a fixed deposit with a structured note. As the adage goes, there is no such thing as a free lunch.

Turn to Endowus for a one-stop-shop corporate cash management solution

We understand the difficulties SMEs, startups, and business owners face when seeking the most optimal corporate and cash management service and we are here to help. 

You can turn to Endowus Treasury Solution for a one-stop-shop solution for your corporate cash management needs on a single, secure platform, offering you a simple, seamless experience.

Invest in low-risk assets while enjoying flexibility in your corporate cash management 

There are other instruments that corporates can utilise to obtain a higher interest rate without locking up your cash for an extended period such as money market funds (MMFs).

According to Bank of America, investors have poured over US$1 trillion into global money market funds as of Q3 2023 since the start of the year. 

So what is a money market fund? It is a type of mutual fund that invests in a diversified portfolio of short-term, high quality, low-risk securities such as Treasury bills (T-bills), commercial paper, and certificates of deposit. MMFs are considered to be low risk, and are intended to offer diversification, liquidity, and operational risk management. 

For example, the HSBC Global Money Fund - HKD invests mainly in HKD short term deposits and high quality money market instruments by governments, quasi governments, international organisations, financial institutions and other corporations. The fund generally will not hold more than 10% of the total NAV with a single entity. Due to this restriction, investors in money market funds are exposed to relatively low risk.

This chart shows the historical returns of the HSBC Global Money Fund - HKD:

HSBC Global Money Fund - HKD

Growth of $100 since inception

The HSBC Global Money Fund - HKD, incepted in March 1991, has a strong track record. It has weathered multiple ups and downs in the markets over the years, including the Global Financial Crisis, the COVID-19 crash, and the ongoing rate hike cycle. 

The fund has demonstrated prudent risk management, with its maximum drawdown at -0.0098% or 9.8 cents for every $1,000 invested. There was only one drawdown recorded for the fund since the share class inception in Dec 2018. On a monthly basis, the HSBC Global Money Fund - HKD has consistently delivered positive returns.

Attractive yields in corporate cash management with Endowus Treasury Solutions

Importantly, Endowus Treasury Solutions offer an attractive yield while providing flexibility. Money market funds can be sold at any time, with no lock-in or redemption fees. Typically, any investors would be able to get cash back within three to four business days.

HKD

USD

Access institutional investment advisory services through Endowus

Besides money market funds, Endowus offers a curated range of 200+ Best-In-Class funds, from fixed-income, equity to multi-asset products across a range of investment strategies offered by over 50 leading global fund managers.

Most companies’ finance departments, particularly SMEs and startups might lack an investment specialist to help them understand how to match their financial needs with the right investment products. The Endowus Investment Office constructs customised portfolios and explains to clients the portfolio traits such as:

1. Historical performance: returns, maximum drawdown or MDD, and days to recovery
2. Yield to maturity (YTM) vs credit rating, so you know you are taking credit risk that is compensated
3. Yield to maturity (YTM) vs duration, so you know you are taking duration risk that is compensated
4. Liquidity of the funds 
5. In the case of a portfolio constructed with short-duration bond funds — whether the underlying securities are held to maturity and how stable the total return of the fund has been historically

Furthermore, unlike typical retail fund platforms that operate as a “supermarket” of funds, the Endowus Investment Office only showcases best-in-class funds that are selected after rigorous qualitative and quantitative assessments based on our SMART+ proprietary framework, which includes evaluation of the investment firm, team, framework, process, and performance of the fund, as well as fee structures and business practices.

With Endowus, your assets are safeguarded

Endowus Hong Kong is licensed and regulated by the Securities & Futures Commission of Hong Kong (SFC), and we are required by law to segregate client monies and client assets from our own, and maintain a ledger of all holdings.

We offer no leverage and no lending out of client monies or assets. All invested client assets are ultimately held by fund-appointed custodians. 

These are structural safeguards we purposefully designed to protect client assets as the safety and security of client assets at Endowus have been a top priority of our foundation.

Read more: How your money and assets are kept safe and secured when investing through Endowus

Get a dedicated corporate relationship manager at Endowus

A dedicated client advisor will work closely with you to understand your firm’s unique financial situation and provide bespoke solutions tailored specifically to your firm. 

Our team of advisors have decades of experience at leading global financial institutions including Morgan Stanley, HSBC, Deutsche Bank, Nomura, Standard Chartered, Barclays, and Bank of Singapore.

With Endowus, enjoy a multi-currency solution at competitive FX rates

In addition to HKD-denominated investments, Endowus also offers investment solutions in other currency such as USD. We offer very competitive all-in FX rates from our wholesale FX brokers, which we pass on to the end investor without adding a spread.

Work with Endowus to find your best treasury solution

The pursuit of higher yield for corporate cash savings is a complex endeavour that requires careful tradeoffs between factors such as risk, liquidity, and the effort required to manage the solutions. 

Endowus Treasury Solutions offers a comprehensive and efficient platform to address these challenges, providing flexible, low-risk treasury management solutions, access to institutional investment advisory services, asset safety, and a dedicated relationship manager. 

To find out more, contact us at institutional.hk@endowus.com or schedule a 1-on-1 free consultation with our SFC-licensed client advisors anytime.

Read more: 

• Endowus Cash Management Solution Update (November 2023)
• Optimising your savings: money market funds vs time deposits
• How to choose between money market funds

<divider><divider>

Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance or returns. Projected performance or returns is not guaranteed to materialise. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 

Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

General risk warnings relating to collective investment schemes 

Before making an investment decision, you are reminded to refer to the relevant prospectus/ offering document for specific risk considerations and related fees and charges.

Funds are not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested.  

Some of the funds also involve derivatives. Do not invest in them unless you fully understand and are willing to assume the risks associated with them.

Opinions

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus HK Limited (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus HK Limited, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

No invitation or solicitation

Nothing contained [in this article] should be construed as a solicitation, an offer to buy or sale, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction in any jurisdiction in which such solicitation, offer to buy or sale would be unlawful under the securities laws in such jurisdiction. No information included [on this website/ in this article] is to be construed as investment advice or as a recommendation or a representation about the suitability or appropriateness of any advisory product or service; or an offer to buy or sell, or the solicitation of an offer to buy or sell, any security, financial product, or instrument; or to participate in any particular trading strategy. Investors should seek independent financial and tax advice before making any investment decision.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

Complex Products

Some of the funds contained in this article are complex products and investors should exercise caution when investing in these products. Though these products have been authorised by the SFC, authorization does not imply official recommendation. SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance.

This advertisement has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.