Most companies maintain a written, formal investment policy and monitor it regularly, according to the
2014 gtnews Investment Strategy Survey
, sponsored by State Street Global Advisors (SSgA).
In June 2014, gtnews conducted a survey of its corporate practitioner subscribers to evaluate the investment strategies organisations are employing, as well as any impact recent policy changes and regulations may be having on day-to-day operations. gtnews received feedback from 238 subscribers, many of whom represent companies that conduct business across regions all over the world.
Nearly 80% of organisations have a formal investment policy. A larger share of companies with annual revenues of US$1bn or more maintain a formal investment policy than smaller-sized organisations (88% versus 68%). In most cases, those authorised to approve those policies are organisations’ boards of directors or CFOs.
Fully 70% of respondents classify cash as an asset class in their investment policies. The allocation of organisations’ short-term cash holdings currently placed in bank products is fairly diverse. Survey results reveal that companies are evaluating and closely monitoring their bank partners. Recently imposed European Central Bank regulations have had some impact on companies, but most organisations do not anticipate any material effect. Basel III is likely to have a significant impact on organisations’ decision-making process, but survey respondents do not anticipate a significant impact on depository holdings.
Regulations continue to play a key role in investment strategies overall. Money market fund (MMF) reforms should have a substantial effect on short-term liquidity. The U.S. Securities and Exchange Commission (SEC) plans to implement changes to MMFs, while the European Commission may reconsider proposals for reforms that it had suggested earlier this year. With more enhanced reporting and the implementation of redemption fees and redemption limits/gates on potentially any MMF, it is fairly certain that due diligence and prudent investment policies and process will be just as important now if not more important than when the implementation timeframe rolls around.
With MMF reform in the U.S. scheduled to be implemented by 2016 and full implementation of Basel III slated for 2019, companies have to make decisions that will support their investment principles in a prudent manner. Having both a sound investment policy that is reviewed on a regular basis and the ability to adapt to market conditions using a disciplined, yet flexible framework will help investors weather any storm that develops during any business cycle.
“As regulatory reforms continue to roll out in different phases across the globe, investors need to be prepared for a marketplace that is increasingly evolving, innovating and changing,” said Barry F.X. Smith, Global Head of Cash Management for SSgA. “Amid this change, investors need timely input and advice, and a disciplined, repeatable investment process that can help them make sound decisions under any market conditions.”
Download the 2014 gtnews Investment Strategy Survey here.
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