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:
- Maximum liquidity limits
- Minimum credit ratings
- Concentration limits
- Percentage of portfolio in overnight liquidity
- Benchmark selection
- Appropriateness of ABS and MBS in cash portfolios
- Prohibited transactions
- Addressing conflicts of interest
- Monitoring portfolio performance
- Resolving out-of-compliance items
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.
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