Liquidity remains a central concern while risk control continues to be a focus of chief investment officers, treasurers and other senior decision makers, according to a survey on global liquidity investment by J.P. Morgan Asset Management.
The survey's key findings include:
· Liquidity is still key – Liquidity is a central concern of survey respondents, as reflected in their choice of investments: half of global cash assets are placed in bank deposits. Usage is most prevalent in Asia, where 68% of assets are held in bank deposits, vs. 48% in Europe and 38% in the Americas. Money market funds account for over one-third of cash assets in the Americas.
· Risk remains a focus – In an effort to control risk, the majority of respondents’ investment policy statements define portfolio duration and credit standards for both longer- and shorter-term securities. Larger firms tend to be less conservative in their definition of permissible credit rating, which allows them to take on additional interest rate and credit risk.
· Cash allocation remains steady - A majority of respondents plan to stay the course with their current cash allocation through 2015 even in the face of low interest rates and regulatory concerns.
· Cash balance size and diversification – Firms with larger cash balances have a broader set of investment guidelines. A third or more of larger firms permit investment in asset-backed securities or mortgage-backed securities. Firms with relatively smaller cash balances typically have more limited investment options at their disposal.
· Search for yield – Separately managed accounts (SMAs), customized portfolios that allow investors to define their own risk, security and liquidity parameters, account for a significant share of cash allocations. In the Americas, 11% of cash assets are invested with SMAs or outside managers. Investor demand for SMAs can be seen as a clear demonstration of the need for yield.
· Manager selection – In selecting an asset manager, the top three criteria in order of importance are performance/risk-adjusted returns, investment expertise and firm relationships.
“As investors anticipate a changing interest rate and regulatory environment, they are recalibrating their cash investment decision-making,” said John Donohue, head of global liquidity for J.P. Morgan Asset Management. “This process -- always important, never simple --can greatly benefit from a peer comparison. We believe our PeerView survey can serve as a useful industry benchmark.”