COVID-19: Impact on Cash Portfolios

Watch the Webinar: Click the above video for a replay of our March 31, 2020 webinar on the impact of COVID-19 on cash portfolios. Hosted by Benjamin Campbell, CEO, and Lance Pan, CFA, Director of Investment Research & Strategy.
The cash management landscape has changed greatly in the short time since we published our February 2020 report on COVID-19, How to Assess the Coronavirus Outbreak’s Impact on Liquidity Portfolios. The following are highlights from our March 31, 2020 webinar, COVID-19: Impact on Cash Portfolios.
As we progressed through March 2020, the novel coronavirus outbreak expanded from Asia to a pandemic that ravaged much of the rest of the world, with climbing death tolls, widespread stay-at-home orders and massive supply chain disruptions. With no vaccine available and widespread uncertainty about an end date to the public health disaster, financial markets essentially froze in place across regions and across asset classes.
The US economy had been on a sure footing before the pandemic and, like with other coronavirus outbreaks, should eventually recover from much of the damage. However, the lack of near-term visibility resulted in a stubborn liquidity crunch that created tremendous headaches for policymakers and investors alike.
Faced with the prospect of the global economy slipping into a deep recession without government interventions, central banks and national governments made herculean efforts to provide liquidity and economic assistance packages. Spearheading these efforts, the Federal Reserve took dramatic measures addressing different parts of the market, starting with repurchase agreements, then Treasury and agency mortgage-backed securities trading, commercial paper, and lastly corporate bonds and asset-backed securities.
Along the way, the Fed took emergency measures to cut short-term interest rates, to restart quantitative easing of government securities, and to relax regulatory requirements to enable banks to pump out liquidity and financing. Most of these emergency measures came from the 2008 crisis-management playbook, along with a few new ones. When combined with three rounds of fiscal packages valued at up to $3 trillion, these measures succeeded in loosening the liquidity logjam and steered financial markets back on a trajectory towards normalcy. It was not the end of the war, but a tough-won battle with the hope for light at the end of the tunnel.

Client Portfolio Management

To continue uninterrupted management of our clients’ institutional liquidity portfolios, Capital Advisors Group activated contingency protocols, with secure remote working arrangements and other technology-based solutions. Every day starts with a morning call with market updates and all-hands-on-deck strategies. Our portfolio managers have worked with the trading and credit teams to keep our clients updated on evolving market conditions and credit developments along with our assessments.
In addition to liquidity that meets normal monthly cash needs, our portfolio construction process incorporates a liquidity cushion and organic liquidity from laddered maturities. We believe, this process has served our clients well, helping them navigate through several major liquidity downturns over the last three decades. Our liquidity-driven credit framework is built on in-house credit analytical tools independent of credit ratings and augmented by market signals and third-party research. Sector and issuer diversification, conservative exposures, maturity limits and the separate account structure strategies aim to help our clients avoid the pitfalls of shared liquidity during market turmoil.
While the world is by no means out of the woods in the fight against the worst pandemic in the last century, we expect market conditions to continue to improve as various government support programs go into effect. We remain comfortable with the liquidity buffers, credit selection, and diversification of our portfolios. Our teams of portfolio, relationship and operations managers, credit analysists and traders remain committed to supporting our valued clients through open communication lines as we move through this difficult time.

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