One of the greatest risks for short-term treasury is a lack of diversification. In a survey published by Northern Trust Asset Management earlier this year, almost one in five (18%) of the treasury teams surveyed held between 80% and 100% of their short-term investment portfolio in bank deposits.
“Using money-market funds, and indeed ultra-short bond funds, in a diversified portfolio of investments enabled by a cash-segmentation strategy helps lower counterparty risk while maintaining liquidity within a short-term investment portfolio,” says Antulio Bomfim, head of global macro for the global fixed income team at Northern Trust Asset Management.
Paul Mueller, head of global liquidity EMEA portfolios at Invesco, refers to money-market funds as a key tool to reduce counterparty risk, noting that the investment manager would generally diversify its investments across at least 30 or 40 different issuers.
“We also diversify across economic regions as it is difficult to be completely sure where risks may occur, as we saw with the issues of some of the medium-sized regional US banks in March this year,” he says.
Treasurers
