Shaping Investment Policies for a Safer Cash Portfolio

2 min read

Abstract

We set out to answer 10 of the most common questions related to writing investment policy statements (“IPS”) for cash portfolios. In doing so, we will provide a number of peer group data comparisons to add insight to the process.
The treasury investment management landscape has undergone significant changes. We found that investors recently shortened their maximum maturities, increased ratings requirements, reduced issuer-based concentration, and dialed back the use of asset-backed securities. These changes represent a trend to upgrade portfolio credit characteristics, which is consistent with investor behaviors in the wake of major market downturns, in our opinion.
The 10 questions we addressed focus on the following investment subjects of investment policy statements:

  1. Maximum liquidity limits
  2. Minimum credit ratings
  3. Concentration limits
  4. Percentage of portfolio in overnight liquidity
  5. Benchmark selection
  6. Appropriateness of ABS and MBS in cash portfolios
  7. Prohibited transactions
  8. Addressing conflicts of interest
  9. Monitoring portfolio performance
  10. Resolving out-of-compliance items

Revision Note

Since our earlier revisions, the treasury investment management landscape continues to undergo major changes that require a fresh look at how corporate investors construct their investment policy statements. The general guidelines contained in the Appendix still serve as a quick reference guide for key components in an IPS. This revision also offers a side-by-side view of the preferences of Capital Advisors Group’s client universe in 2015 versus 2012.
In general, we found that investors have shortened their maximum maturities, increased ratings requirements, reduced issuer-based concentrations, and cut down the use of asset-backed securities as permissible investments. These changes represent a trend to upgrade portfolio credit characteristics, which is consistent with investor behavior in the wake of major market downturns, in our opinion. We hope this update provides additional helpful insight for institutional investors in their own IPS construction or revision efforts.
DOWNLOAD FULL REPORT

Our research is for personal, non-commercial use only. You may not copy, distribute or modify content contained on this Website without prior written authorization from Capital Advisors Group. By viewing this Website and/or downloading its content, you agree to the Terms of Use.

Please click here for disclosure information: Our research is for personal, non-commercial use only. You may not copy, distribute or modify content contained on this Website without prior written authorization from Capital Advisors Group. By viewing this Website and/or downloading its content, you agree to the Terms of Use & Privacy Policy.

Lance Pan joined Capital Advisors Group in 2003. As Director of Investment Research and Strategy, Lance assesses the risk and relative value of asset classes and credits, creates advanced credit approval and surveillance procedures, issues credit opinions, and provides investment strategy recommendations. Lance oversees Capital Advisors Group’s Credit Committee.

Similar Posts

Taking Stock of Japanese Megabanks’ Credit Profiles in Volatile Markets

Taking Stock of Japanese Megabanks’ Credit Profiles in Volatile Markets

Investment Management

4 min read4 min readRecent market turmoil, triggered by the Bank of Japan’s interest rate hike and disappointing US jobs data, has resulted in a sell-off in Japanese megabanks’ stocks. Cash and short-duration bond investors may be wondering if they should worry about these banks’ credit profiles. Here is a balanced analysis to help them make an…

converence table with Capital Advisors Group experts

Registered Investment Advisors vs. Broker-Dealers: Who Should You Work With?

Investment Management

7 min read7 min read Registered Investment Advisors (RIAs) vs. Broker-Dealers (B-Ds): An Overview The services of a registered investment advisor or a broker-dealer should be considered if you are seeking to establish a separately managed account for your institutional cash investments. RIAs that are regulated by the U.S. Securities and Exchange Commission (SEC) have a legal…

dice that all have a single percentage character instead of dots

Putting Cash to Work

Investment Management

11 min read11 min readIntroduction: Higher Rates are Coming to An End Recent comments by Federal Reserve officials indicate that monetary policymakers may soon start lowering short-term rates as inflation and employment data continue to moderate. This shift comes after a period of keeping interest rates more elevated than initially thought. Meanwhile, stockpiles of cash from Covid-era…

Republic First Bank Resolution: Minimal Disruption Expected

Republic First Bank Resolution: Minimal Disruption Expected

Investment Management

2 min read2 min readOn Friday afternoon, the FDIC took the failed Republic First Bank into receivership and the majority of the bank’s assets and liabilities were sold to Fulton Bank on the same day. We do not expect this bank failure to create systemwide turmoil similar to what we experienced in March of 2023 due to…

Negative Rates are No More, But The Era of Big Central Banks Reigns Supreme

Negative Rates are No More, But The Era of Big Central Banks Reigns Supreme

Investment Management

7 min read7 min readIntroduction The Bank of Japan’s (BOJ) meeting last month was perhaps the most consequential central bank meeting of the entire year. The BOJ raised interest rates by 10 bps  to 0-0.10%, all-in-all a small amount in magnitude.  However, this marked the first interest rate increase by the central bank in 17 years. Moreover,…