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Searching for Yield in the New Cash Management Landscape

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Rising interest rates may offer new opportunities for higher yields, but they also present institutional cash investors with fresh challenges. Ultra-conservative investment strategies no longer meet expectations for higher returns, so managers know they may need to move beyond a safe mix of Treasuries and FDIC-insured cash accounts.

In an earlier era, their job would have been easier. Parking cash in prime money market funds once offered easy liquidity, competitive market-based returns, and enough safety to comply with most corporate investment policies. But the 2016 money market fund reforms changed the rules of the game. Liquidity fees, redemption gates and floating net asset values altered the risk profiles of prime funds and made it more difficult to predict returns.

Our white paper this month, On a Path to Return on Investments: Revisiting the Risk/Reward Profile of Corporate Cash Portfolios, provides some useful insights on how to navigate this new landscape. The report presents four hypothetical investment portfolios to illustrate risk/reward tradeoffs of alternative investment strategies. They range from a very conservative, all-Treasury strategy to a total-return portfolio with longer maturities and an expanded array of investment vehicles.

Every manager must craft a strategy that’s unique to the needs of his or her organization. But our analysis points to improved diversification among cash vehicles, with a focus on liquidity and maturity structures, as a potentially effective way to improve your portfolio’s risk/reward profile. Not surprisingly, integrating separately managed accounts into your cash management strategy may help meet your new goals.

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Best Regards,

Ben Campbell
CEO

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