A new survey of nearly 350 companies by the Association for Financial Professionals found that companies were more likely to have made a "substantial change" in their balances of cash and short-term investments over the first six months of 2008 than in recent years. Some 37%, or more than one in three responding treasurers, said their companies were holding more cash and short-term investments as of May than six months earlier. In general, the survey found that over the past year, companies have been placing close to three-quarters of their short-term investments in just three relatively safe and liquid investment vehicles: bank deposits, money market mutual funds and treasury bills, instead of commercial paper (down 29%), repurchase agreements (down 44%), enhanced cash total return vehicles (down 27%) and separately managed accounts (down 55%).

As for auction rate securities, according to the survey, over 5% of all short-term treasury investments were in ARS holdings a year ago. Today that figure is below 1%, and 94% of corporate financial officers said they did not foresee re-entering the ARS market soon. Also way down were investments in municipal bonds, variable rate demand notes and other short-term investments. Even the number of permissible investment vehicles available to treasurers was down, with the average for all reporting organizations falling to four, in addition to bank deposits and T-bills, compared to six to seven in the prior year's poll.

"I think it's clearly the case that until recently, a lot of corporations were putting a lot of emphasis on the return and yield on short term investments," says Robert Deutsch, managing director and head of global liquidity at JP Morgan. "Now the priority has shifted to security of assets and liquidity, with yield well down in third place. Some hard lessons have been learned and we think this shift in priorities is going to last for some time." Deutsch says that in less than a year, more than $1 trillion in short-term corporate treasury assets has moved, with money market funds adding $500 billion, bank deposits gaining $300 million and commercial paper declining by more than $600 billion. "Clearly there's been a big flight to quality, and it's even been occurring within the cash category," he says.

Courty Gates, CEO of Clearwater Analytics LLC, based in Boise, Idaho, and New York, mostly concurs: "I don't know that treasuries have been removed as profit centers in the minds of executives, but certainly yield is not viewed as being important in the way it was 12 months ago."

How significantly treasurers have altered their thinking and their investment strategies in the current market environment to some extent depends on what their companies need the cash for. "This is not a question of small vs. large companies," says Greenwich Treasury Advisors' Wallace. "It's more a matter of whether they see the cash as a liquidity cushion, or for capital expenditures or whatever."

Eric Ball, treasurer at Oracle, for instance, says his department has seen only minor changes in the wake of the credit crisis. "With 44 acquisitions in the last three years, we are an acquisitive company, and so we like to keep our powder dry," he says. "As a result, I have always kept our investable pool of cash pretty available." That said, there have been some "tweaks" in policy. "Our assistant treasurer, Ryan Seghesio, who handles our domestic investments, stopped buying asset-backed securities in March of '07," Ball notes, "because he was troubled by a lack of transparency." In general, Ball adds, Oracle's treasury eschews asset-backed products.

It may be that not many companies actually lost significant money in the collapse of the ARS market and other structured fund arrangements. In any case, no treasurer is likely to step into the news spotlight and talk about making a bad bet. No one has forgotten Bristol Myers Squibb's $275-million write-down of ARS securities losses and the company's abrupt sacking of its treasurer.

Treasury Strategies' Pozin calls the new risk for treasuries "headline risk." Treasurers used to operate for the most part under the radar, with most companies "not even having metrics for determining how well a treasury's been doing," she says. Now investors are paying attention to issues like corporate liquidity, and even a small loss because of credit risk issues would be a huge embarrassment. "Any loss at all today could cost someone their job. We're in an era of zero tolerance of losses in treasury," she says.

Verisign's Goddard is a case in point. He says the company, which in the first quarter of 2008 was reporting $438 million in cash and cash equivalents, "has suffered no loss of liquidity or write downs in principal on any of its fixed-income investments," during the past 12 months of the credit crisis. That's because last summer, management decided to examine everything it owned, and acted to prevent any loss of liquidity, he adds. For his part, Goddard last fall ordered a full review of the company's investment policy. As a result, he has tightened things up considerably at treasury, moving holdings "to the short end of the curve," and out not only of structured funds, but also of enhanced cash and outsourced portfolios and anything of longer duration than money market funds. And even there he makes sure those funds–he likes The Reserve and Goldman Sachs–have as little as possible direct exposure to problem investments.

"It's a good time to hunker down," he says. How long that will last is up to conjecture. "The credit crisis will lead to convulsions for another two to three years," he predicts, "and whether it has hit bottom yet is hard to say. It reminds me of Europe in the early to mid-'90s."

Meanwhile, the shift in emphasis to preservation of capital and to locking up liquidity could lead to expanded treasury departments given an increased workload of keeping a close eye on investments. "We're likely to see some treasuries adding staff," predicts JP Morgan's Deutsch. "Others, though, are turning to outsourcing." He notes that JP Morgan, which has an institutional investment program geared to corporate treasuries, has seen a $100-billion jump in business over the past year. "Eighty percent of that is coming from corporate treasurers," he says.

Pozin agrees that treasuries are moving to contract out management of their cash. "Some of it is panic," she says. "Some of it is distrust of the rating agencies. Longer term I think we will see considerably more use of outsourced investment management." Widespread criticism of the rating agencies, on whose reports treasurers used to rely with confidence, and the high cost of paying for such credit investigation, has made the idea of turning to a large institutional investor, like BlackRock or JP Morgan, attractive. "They have the capability of doing credit research in-house," says Verisign's Goddard. "The only reason we haven't done it is that, for the moment, we're trying to stay very short. When things calm down again, though, to where we might be dealing with a three-year portfolio, we might do it. It's a good idea." Few corporate treasuries, he notes, are large enough to be able to conduct credit investigations in house. But even outsourcing has a down side, however, as Clearwater's Gates notes, "A lot of very credible investment managers got caught."

Still, Goddard concludes: "Getting a good return on corporate cash is always going to be part of a treasurer's agenda, but if people think it should be at the top of the agenda, they are mistaken. Most companies exist for some underlying business reason, and that is where companies should be focusing their efforts and attention, not on whether they've squeezed an extra 10 basis points out of their treasury assets."