Liquidity and risk management still a focus for cash investors, according to J.P. Morgan Asset Management’s Global Liquidity Investment PeerView 2014 survey.
Over 300 CIOs, treasurers and other senior decision makers around the world participated in the survey, representing more than 300 unique entities and all sectors of the global economy.
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Key findings:
- 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."
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