How Are Your Peers Managing Their Cash?

Introduction

Following the collapse of Lehman Brothers in 2008, the rapidly deteriorating economic environment in the U.S. and abroad caused most treasurers to reevaluate their cash investment strategies, with a specific focus on restricting investments in certain asset types. Some companies implemented these restrictions by changing their investment guidelines, while others simply gave instructions to limit investment activity to the most conservative corner of their existing guidelines. Across the board, we saw our clients “hunker down” in government-issued and government-backed debt during the height of the credit crisis. However, with a substantial improvement in the credit markets over the past three years, we have observed a considerable shift in clients’ desire to pursue more yield by allowing investments in prime money market funds, corporate securities, foreign sovereign debt and even asset-backed securities.
When considering changes to their investment strategies, many treasurers are interested in understanding the decisions being made by their peers. This context not only helps to validate the recommendation that a treasurer may receive from an investment manager, but it also provides an invaluable reality check before a new cash management strategy is presented to an Audit Committee or Board of Directors. In this whitepaper, we will use Capital Advisors Group’s client data to compare how investment strategies changed over the three years from March 31, 2009, to March 31, 2012. We hope that the results of our analysis will assist treasurers in evaluating their current investment strategies and determining whether to pursue additional yield in their cash portfolios.

The Sample:

The sample of Capital Advisors Group’s clients used in the analysis met the following criteria: i) they were clients throughout the three-year period of March 31, 2009, to March 31, 2012, and ii) they permitted investments outside of money market funds. For each client, we determined whether or not the permitted investments in prime money market funds, U.S. Government debt, industrial and financial corporate securities, foreign sovereign debt and asset-backed securities on March 31, 2009, and March 31, 2012. In determining if a client permitted investments in a particular asset class or industry, we considered the client’s investment guidelines in combination with the client’s instructions, if any, with respect to such asset class or industry. Our analysis did not take into account the maturities or ratings of securities.
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