How Aviva is thinking about treasury and liquidity

David Epstein, Director of ALM and Treasury at Aviva explores some of the biggest trends impacting treasury managers including negative rates and how cash management is changing

Sara Benwellposted on Thursday, September 02, 2021

Mathieu Stern

Sara Benwell: How are you thinking about liquidity and what do you invest in, within your central holdings?

David Epstein: We hold central liquidity at group centre and tend to be very risk averse with this as we want to be very liquid and confident that we can draw very quickly.

We run a set of liquidity funds through our own asset manager that we invest in, one is primarily government, which is short term gilts, reverse repos. and there is another fund which takes a little bit of corporate risk through financial institutions so commercial paper, certificates of deposit and that sort of thing.

"We hold central liquidity at group centre and tend to be very risk averse with this "

For these, you are getting the money very quickly if you need it and earning a little bit of return but not a lot.

We have liquidity funds in other currencies as well but most of our liquidity sits in sterling although we will sometimes have some dollars and euros too.  We will see quite different yields in these currencies given where interest rates currently are.

Sara: Given that we have been in a very low interest rate environment for a long time and that this looks set to continue, would you be willing to invest in negative rates? To what extent is yield important to you and is it a priority when you are looking at these kinds of short-term cash tool options?

David: In the euro liquidity fund we have been investing in negative rates for a while and I would say that it does take a little bit of time to get used to.

The whole economics of a negative rate environment is different and on the one hand it is not pleasant investing in negative rates. But on the other hand, there are a lot of other things happening because rates are negative which are beneficial to you.

So, you do have to consider the whole situation.

"If it comes down to it, I would prefer to have my liquidity more quickly than to keep my yield above zero."

Sometimes it feels as though it is more of a psychological barrier at zero rather than a meaningful yield differential.

We are starting to see yields in Sterling go negative in some funds as existing positions roll off and after fees, which does have some operational complications and is something to consider.

If it comes down to it, I would prefer to have my liquidity more quickly than to keep my yield above zero.

Sara: How is the world of cash management changing and what things are you doing to manage your intraday liquidity?

David: Relative to the past 3-5 years we are probably more conscious of intraday liquidity.

It was something that we were comfortable with but didn’t spend lots of time thinking about in the way that we do now.

We are a lot more conscious of the inflows and outflows of the day, and the lines that might be extended to us by banks in this regard and how we manage this process better to ensure that we have smooth operations.

In terms of recent developments, something that we are starting to get involved with is the idea of repo, reverse repo direct between institutions, such as ourselves, our money market funds and pension funds on the other side.

The idea of not so much disintermediating the banks
but creating another platform through which you can
continue to do repo, especially at the quarter and
year ends where the banks tend to pull back a little
bit because of the balance sheet impact for them.
This is quite an interesting area, which may even lead
to slightly better yields because there is broader


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