TEAM plc (LON:TEAM) company JCAP Limited Managing Director Jerry O’Keeffe caught up with DirectorsTalk for an exclusive interview to discuss his background and what JCAP does, types of clients, how JCAP benefits TEAM’s clients, bank deposit markets and what he recommends to retail investors for their cash holdings.
Q1: First off, could you just tell us a little bit about yourself and what JCAP does?
A1: Well, I’ve been in the finance field for the best part of 30 plus years and I’ve worked in the city of London for the vast majority of that. I worked at a company called ICAP, I joined it when it was a very small company and I left it when it was a very big company.
JCAP was formed in 2009, basically in the aftermath of the financial crisis. I came back to Jersey because I was born here and at the time there was a backlog or a blockage really between the banks, none of the banks would lend funds to each other. So I saw an opportunity to set up a business where we could talk to clients with money and arrange for those funds to be deposited with the banks that needed money.
Q2: Could you tell us then a little bit about the types of clients that you have, why they use JCAP and how JCAP helps them?
A2: So, the interest rate market is quite a complicated thing. It sounds very simple, everyone generally keeps money on instant access, but we have a yield curve, the longer that you are willing to lend your funds out, the higher the return you get on your cash. Banks will have different requirements at different periods and the rates that they pay will vary quite a lot.
So, our clients are fiduciaries, high net worth clients, or basically anybody who’s holding cash on one side of the equation and on the other side of the equation are banks who require cash.
We get the information from the banks, we talk to the banks on a daily basis, we find out what their appetite is, we find out what rates they’re paying. We then pass this information onto the people that are holding cash and we build a portfolio of cash investments for the clients. As rates move, we move money around and we try and ensure that the clients are always getting the best returns given that they tend to have a liquidity and a credit issue so they won’t lend all their money to one bank. So, we try and help them spread their risk and spread their deposits.
Q3: So, why did TEAM buy JCAP and how does JCAP improve the services offered to TEAM’s clients?
A3: Cash is part of anybody’s portfolio, always has been, always will be. The amount of money that people hold in cash are for various things, generally it’s for opportunities so they’re always going to have some sort of liquidity, either pending investment or buying a house or going on holiday or putting it back into the stock market. So, cash is always part of a person’s asset mix.
Now, managing your cash correctly, we’ve gone through a very low interest rate environment for quite a long time, we’re now going through an interest rate environment where rates are going up, people’s allocation to cash will probably be increasing as rates go higher.
So, TEAM do the asset management – TEAM Asset Management – and TEAM plc saw an opportunity to buy a cash manager to help the clients manage the cash parts of their portfolios in a much better way and you can get a decent return from cash if it’s managed correctly.
Q4: Now you’ve just touched on this a little, but just looking more at the sector itself, what’s happening in the bank deposit markets, given the changes in central bank rates tec.?
A4: I think it’s pretty seismic really. We’ve had possibly from back to the financial crisis, central banks pumping liquidity into the markets, this has created asset bubbles, this has created low returns on cash, but you can’t carry on doing that forever. A couple of incidents or a couple of issues have arisen, the primary one being the war in Ukraine, which has created inflation.
Now, inflation hasn’t actually been seen by a whole generation of investors, inflation is now out of the bottle and it’s not going away anytime soon. The inflation has to be controlled by monetary policy because the central banks have very few other tools in their toolbox left. So, withdrawing the excess liquidity that they put in to stabilise markets when we had the pandemic, they’re now starting to withdraw. By withdrawing the liquidity and having to combat inflation i.e. slowing down the economy, they’re having to raise rates.
So, we are seeing rates moving up at a very rapid pace, even now they’re at the highest point in 10/12 years, they will be going higher. I think in order to stave off the inflationary problems, rates will probably have to go to possibly 3% in the US and somewhere quite close in the UK, Eurozone has just gone from a negative rate to a flat rate that possibly could be 1%-1.5% by the end of this year.
So, it’s an interesting time to be managing cash because we’ve gone from little or no returns into decent returns, if you know where to find the right banks to pay those.
Q5: Given the nature of what you do then, do you have any recommendations to retail investors for their cash holdings?
A5: Certainly look at if you’re being paid any interest at all. Banks tend to not go out and make a song and dance about interest being available. If you are sitting in a current account or a call account and you’re not being paid anything, think about moving to a bank that is paying you interest even for the instant access or possibly reassess whether you need to have all of your money on instant access. Quite a few decisions, buying a house, being primary one, they don’t happen overnight, if you’ve got your money sitting in a one month deposit or 32-day notice product, you can certainly give notice when you want to do a transaction, you’ll get a much better return, sitting in a term deposit or a notice product than you will do by having all your money on instant access.
So I think, even though banks are in a much better position than they were back in the financial crisis, diversification is quite important. Don’t have all your money sitting at one bank because something might come around the corner there that you’re not expecting and cause the bank problems again.
So, spreading your risk, having two or three banks that you deal with looking at your liquidity requirements and making sure that you can keep what you need, but maybe possibly putting some of it out on deposits and understanding the rates that are available from the banks that you are dealing with would all be decent things to do in this environment.
TEAM plc is building a new wealth, asset management and complementary financial services group. JCAP are a team of treasury specialists who deliver technology-based solutions for the management of cash and counterparty risk.