j.p. morgan asset management j.p. morgan global liquidity … · 2019-06-01 · j.p. morgan global...

J.P. Morgan Asset Management

J.P. Morgan Global Liquidity Investment PeerViewSM 2013

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FOR INSTITUTIONAL AND PROFESSIONAL INVESTORS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION

2 J.P. Morgan Global Liquidity Investment PeerViewSM 2013

J.P. Morgan Global Liquidity Investment PeerViewSM 2013 3

Contents Introduction 4

Executive summary 5

The respondents 6

Diversification 8

Liquidity 10

Yield 13

Safety 14

Investment Policy Benchmarking 15

Conclusion 20


I am delighted to introduce the new J.P. Morgan Global Liquidity Investment PeerViewSM survey results report.

Over 200 CIOs, treasurers and other senior decision makers around the world participated in this online survey, representing all sectors of the global economy, from industrials and technology to financial services and health care.

As you’ll see from the results, the strong response rate has helped to identify several critical trends.

As global treasurers look to navigate a shifting interest rate environment, the PeerView findings will help them better understand their cash investment behaviour in comparison to their peers.

An Industry FirstFor the first time, survey participants will receive customized reports that compare their responses to their peer groups by region, cash balance and industry. These tailored reports provide a unique gauge for firms to evaluate how their cash investment policies and practices compare to their peers.

Since we launched the survey in 1998, it has captured the views of treasurers in some extraordinary market conditions, from the height of the tech bubble in 2000 to the depth of the financial crisis in 2008.

This year our survey was conducted as treasurers and CIOs grappled with the impact of unprecedented quantitative easing from the US Federal Reserve and global uncertainty with respect to both interest rates and regulatory change.

Partnership with our ClientsWe could not have completed the survey report without the generous participation of our clients and I’d like to thank everyone who took the time to participate. Your contributions have helped us produce a report that sheds new light on decision-making in cash investment. I hope you find the report informative and useful.

If you require further information, please visit our website: www.jpmgloballiquidity.com

Jim Fuell Head of Global Liquidity Sales, EMEA. J.P. Morgan Asset Management

Introduction


Searching for Yield, Managing Risk This year’s survey took place against a backdrop of an improving global economy, as central bank monetary stimulus kept rates and yields at historical lows and risk assets attracted strong investor demand. Amid widespread expectation of an eventual end to monetary stimulus, treasurers looked to prepare for a rising rate environment. They also contemplated potential regulatory change, including a floating net asset value (NAV) for some money market funds (MMF), which could recalibrate cash management decision-making.

As always, treasurers must grapple with competing forces—a need for yield on the one hand, and a mandate to control risk on the other. In the current low-rate environment, these competing forces have been more intense than usual.

Key Findings■■ Liquidity is still key – Liquidity is a central concern of survey respondents, as reflected in their choice of

investments. Half of cash assets are placed in bank deposits, with usage most prevalent in Asia. Close to a third of cash assets are allocated to MMF, with usage highest in Europe.

■■ Regulatory change is a concern – Treasurers voiced concern about a possible move to a floating NAV. If funds are required to transact at a floating NAV, 71% of respondents would continue to use MMF, with some of them reducing their allocations. Respondents who said they would reduce or eliminate their use of MMF would reallocate assets mainly to bank deposits or other assets that have both credit and term risk. Our survey finds that the biggest barriers preventing companies from using floating NAV MMF is the uncertainty of realized or unrealized gains or losses and the limitations of their investment policies.

■■ Lack of diversification – Companies with larger cash balances are permitted to invest in a range of securities, including riskier investments. But companies with relatively smaller balances may be restricted to a smaller, less diversified pool of securities.

■■ Risk remains a focus– In an effort to control risk, the majority of respondent investment policy statements limit the use of shorter duration debt securities and require minimum credit ratings for both longer and shorter term securities.

■■ Search for yield –Approximately one in every five dollars is invested in separately managed accounts, customized portfolios that allow investors to define their own return, security and liquidity parameters. Investor demand for separately managed accounts can be seen as a clear demonstration of the need for yield.

Executive Summary


Number of RespondentsOver 200 treasurers, CIOs and senior cash decision- makers across the globe participated in this survey.

Geographical BreakdownThe 2013 survey was truly global in extent, with decision-makers responding on behalf of organizations in a wide range of regions and markets. There was strong participation in Asia (41%), followed by North America (31%), and Europe at (28%).

Please note that regional breakdowns throughout this report are based on the location where the respondent is most responsible for managing a company’s cash balance.

Q. In which geographic region are you most responsible for managing cash investments?

Figure 1.1: Geographic split - Asia includes Japan, China, Singapore and Australia.

Cash BalanceThe survey sought to capture the views of treasurers from organizations of all sizes; from small regional players to large multinationals. Around 37% of respondent companies had a cash balance of under USD 500 million, while close to one in five had a cash balance of over USD 5 billion.

Q. As of the most recent quarter when your company reported financial results, which of the following best describes the total value of cash and marketable securities on your company’s balance sheet?

Figure 1.2: Cash balance split.

1 The Respondents

Asia Pacific41%

Europe28%

North America

31%

<USD500m37%

USD500–USD999m

18%

USD1b–USD5b28%

>USD5b17%


Industry SpreadRespondents represented companies and organizations from all sectors of the economy; from industrials and technology to financial services and health care.

Q. Which of the following best describes the industry in which your company operates?

Figure 1.3: Split by industries.

8%

8%

9%

9%

18%

20%

27%

Industrials, Manufacturing & Agriculture

Financial, Insurance, Real Estate & Construction

Technology, Media & Telecom

Energy, Power & Utilities

Consumer Goods

Health & Pharma

All others


Investment Policy Statement & DiversificationThe survey finds that companies with larger cash balances have a wider range of permissible securities in their investment policy statements, allowing for a greater opportunity for diversification.

Q. Which of the following cash investments are permissible under your company’s investment policy?

Figure 2.1: Percent of respondents stating these securities are permissible in their investment policy statements.

Investment type By cash balance

US government securities (US Treasury and government agency obligations)

74%

61%

58%

33%

Obligations of non-US governments or supranational organizations

59%

36%

25%

11%

Repurchase agreements

71%

52%

39%

17%

Commercial paper

76%

64%

56%

33%

Bank obligations CDs, Deposits, Bankers acceptance, etc.

82%

77%

78%

73%

Money market funds

85%

88%

89%

79%

Variable rate demand notes

38%

25%

17%

5%

Asset backed or mortgage backed securities

44%

21%

14%

11%

Corporate debt securities

62%

48%

39%

17%

>USD5bn USD1bn–USD5bn USD500m–USD999m <USD500m

The findings suggest that there is significant opportunity for companies to expand their roster of permissible securities, especially when it comes to managing between yield and safety in the current market environment.

2 Diversification


The Desire for ProtectionHalf of all cash assets globally are placed in bank deposits/earning credit rate products. This probably reflects a desire for safety more than a need for unencumbered liquidity.

Q. Approximately what percentage of your cash is held in each of the following instruments?

Figure 2.2: Average allocation of cash assets.

Money market funds - By region

66%

40%

35%

50%

19%

41%

34%

29%

8%

13%

22%

14%

7%

6%

9%

7%

Bank deposits/earnings credit rate productsMoney market funds Repos, CDs, commercial paper, corporate bonds Other

Total

North America

Europe

Asia

Money market funds - By cash balance

Bank deposits/earnings credit rate products Money market funds Repos, CDs, commercial paper, corporate bonds Other

<USD500m

USD500m –USD999m

USD1bn – USD5bn

>USD5bn 32%

42%

50%

61%

27%

34%

25%

30%

26%

16%

18%

5%

15%

8%

7%

4%

Though bank deposits are a safe cash investment, they present some inherent disadvantages. While overnight deposits, will generally track higher rates closely, they may offer a lower overall return than a better-diversified investment option.

Because term bank deposits are not marked-to-market, there are no realized or unrealized losses for companies that hold them in their cash portfolios, however, term deposits offer no liquidity until maturity.


Money Market FundsClose to a third of all cash assets are allocated to MMF. Usage of MMF is highest in Europe and in companies with smaller cash balances. Money market funds can be a viable solution to the challenges of a rising rate environment, but treasurers should be cognizant of the weighted average maturity (WAM) of the securities held in a fund.

Q. Approximately what percentage of your cash is held in each of the following instruments? (focus on MMF)

Figure 3.1: Percent of constant NAV MMF.

The yield in MMF will generally rise in line with prevailing interest rates, presenting no unrealized losses. But the increase in yield will lag rising rates to a greater or lesser extent, depending on a fund’s WAM.

3 Liquidity

North America

34%

Europe41%

Total29%

Asia19%


Concerns on Floating NAVWhile treasurers express widespread concern about an impending push toward a floating NAV, close to 71% of respondents said they would continue to invest in MMF even with a floating NAV. However, some of the respondents that would continue to invest in MMF, would reduce their allocations.

Q. If constant NAV MMF were to move to a floating NAV structure, what would you do?

Figure 3.2: Stated action based on potential move to floating NAV.

Reaction By cash balance

Continue to invest in MMF

22%

28%

17%

32%

Reduce MMF allocation, but still leave some

52%

45%

45%

36%

Stop using MMF entirely and reallocate

26%

26%

38%

32%


Unconstrained Barriers to Floating NAV

In assessing the likelihood that they would use floating NAV MMF, most respondents cited either the impact to realized and unrealized gains or losses, or investment policy limitations, as the main factors driving their decision. Tax and accounting requirements were also cited, but they were seen as secondary concerns.

Q. How would you describe the impact of the following on your likelihood to use floating NAV MMF?

Figure 3.3: Reasons for concern about floating NAV.

Barriers to usage By cash balance

Realized or unrealized gains

33%

26%

29%

27%

Investment policy limitations

33%

26%

25%

31%

Accounting requirements

17%

24%

25%

20%

Tax requirements

19%

18%

20%

17%



Among respondents who said they were likely to reduce or stop using MMF if they were required to float the NAV, most would reallocate the assets to bank deposits/earnings credit rate products.

Q. If you reduce or eliminate your use of MMF, what would you likely use in its place?

Figure 3.4: Potential reallocation of MMF

Reallocation of cash By cash balance

Bank deposits/earnings credit rate products

58%

59%

42%

71%

Repos, CDs, commercial paper, corporate bonds

25%

24%

31%

24%

Outsource the cash portfolio

8%

18%

14%

5%

Other

8%

0%

14%

0%



Separately Managed Accounts Diversified solutions (MMF and separately managed accounts) are a critical tool for navigating a shifting rate environment because they provide a range of securities and strategies with varying risk, return and liquidity characteristics. Close to one in five dollars in cash balances are allocated to separately managed accounts, a leading diversified solution.

Q. Approximately what percentage of your total cash assets is held in separately managed accounts?

Figure 4.1: Cash assets held in separate accounts.

Reallocation by region By cash balance

Total 17%

North America 14%

Europe 20%

>%5bn 22%

USD1bn–USD5bn 11%

USD500m–USD999m 14%

<USD500m 21%

The higher yield in separately managed accounts may offset unrealized losses, even though the weighted average maturity of a separately managed account may be difficult to shorten if interest rates rise quickly. At this market juncture, however, indications all point to a slow climb in rates, and not a sudden spike.

4Yield


Debt Securities in Investment Policy Statements Corporate debt is the most widely permissible instrument in investment policy statements. Larger companies tend to be more likely to allow a greater variety of sophisticated debt securities including VRDN’s and ABS.

Q. Which of the following cash investments are permissible under your company’s investment policy?Figure 5.1: Percent of companies, broken down by asset size, whose investment policy statements allow debt securities.


58%

74%

61%

33%


25%

59%

36%

11%


39%

71%

52%

17%

Commercial paper

56%

76%

64%

33%


78%

82%

77%

73%

Money market funds

89%

85%

88%

79%

Variable rate demandnotes

17%

38%

25%

5%


14%

44%

21%

11%


39%

62%

48%

17%


5 Safety


Minimum Credit Rating In determining the permissible minimum long term credit ratings of longer term securities, investment policy statements generally extend the greatest flexibility to longer term corporate debt securities. Companies with larger cash balances, especially those with more than $5 billion in cash assets, tend to be more conservative in their definitions of a permissible credit rating.

Q. For each of these cash investments, what is the minimum credit rating permissible under your investment policy?

Figure 6.1


AAA AA+ AA AA- A+ A A-

BBB+/BBB/BBB-

Less than BBB-

No Limits

Don’tknow/

NA



Money market funds




Figures 6.1-6.5: The data in these graphs present the median of the responses received.

For MMF, investment policy statements set a conservative minimum credit rating across the board, among companies with both smaller and larger cash balances.

6 Investment Policy Benchmarking


Q. For each of these cash investments, what is the minimum short term credit rating permissible under your investment policy?

Figure 6.2


A-1+/P-1 A-1 A-2/P-2Less thanA-3/P-3

Nolimits

Don’t know/NA

Commercial paper





Generally, most companies require top-tier (A-1/P-1) short term credit ratings. Some companies permit tier-two (A-2/P2).


Maximum Maturity U.S. government securities (including agencies), asset-backed securities and corporate debt securities most often have maximum maturities that are longer (2-3 years) relative to other investments.

Repurchase agreements, commercial paper, VRDN’s are most often restricted to shorter term maximum maturities.

Q. For each of these cash investments, what is the maximum maturity permissible under your investment policy?

Figure 6.3


<1 year 1 year 2–3 years 4–5 years >5 years NA




Commercial paper

Bank Obligations CDs, Deposits, Bankers Acceptance, etc.







Maximum Issuer Exposure Respondents reported a wide range of maximum issuer exposure limits. Outside of U.S. government securities, bank obligations and money market funds were given the highest permissible issuer exposure ceilings.

Q. For each of these cash investments, what is the maximum issuer exposure permissible under your investment policy?

Figure 6.4


1-5% 5-10% 10-15% 15-20% >20% No limits




Commercial paper


Money market funds







Maximum Portfolio DurationThe size of a company’s cash balance plays a major role in determining a portfolio’s duration. Larger companies tend to have maximum duration of one to two years.

Q. What is the maximum portfolio duration permissible under your investment policy?

Figure 6.5

By cash balance

6 months or less >6 months – 1 year 1 – 2 years 2 – 3 years > 3 years No limits



Base of 201 respondents completed the survey.

The J.P. Morgan Global Liquidity Investment PeerViewSM Survey has once again assessed the judgments and approaches of treasurers and CIOs around the world. The 2013 survey was conducted as decision-makers contemplated a prolonged period of low interest rates and coming changes in the regulation of MMF. For the first time since its debut in 1998, the survey included a comparative analysis of how treasurers are using their investment policies and practices to manage their cash portfolios. Treasurers can use this survey to compare themselves and their firms to their peers.

As new regulation is enacted and market environments shift, treasurers will confront a host of new challenges. We anticipate that PeerView will capture and reflect these changes in the coming years.

If you have questions about any of the findings in this year’s survey or would like any additional information, please contact your J.P. Morgan Global Liquidity client advisor.

Conclusion


FOR INSTITUTIONAL AND PROFESSIONAL INVESTORS ONLY – NOT FOR RETAIL USE OR DISTRIBUTION

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority (FCA); in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Switzerland by J.P. Morgan (Suisse) SA, which is regulated by the Swiss Financial Market Supervisory Authority FINMA; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securities and Futures Commission; in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore; in Japan by JPMorgan Securities Japan Limited, which is regulated by the Financial Services Agency; in Australia by JPMorgan Asset Management (Australia) Limited, which is regulated by the Australian Securities and Investments Commission; in Brazil by Banco J.P. Morgan S.A. (Brazil) which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen); and in Canada by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. This communication is issued in the United States by J.P. Morgan Investment Management Inc., which is regulated by the Securities and Exchange Commission. Accordingly this document should not be circulated or presented to persons other than to professional, institutional or wholesale investors as defined in the relevant local regulations. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.

© JPMorgan Chase & Co., December 2013 LV–JPM6286 | 10/13

Global Liquidity - EMEAJim FuellFinsbury Dials20 Finsbury StreetLondon EC2Y 9AQUnited Kingdom

Tel: + 44 20 7742 3620

Global Liquidity - USRobert White245 Park AvenueNew York10167-0001United States

Tel: + 1 212 648 2552

Global Liquidity - AsiaPaula StibbeChater House8 Connaught Road CentralHong Kong

Tel: +852 2800 2300

www.jpmgloballiquidity.com

j.p. morgan asset management j.p. morgan global liquidity … · 2019-06-01 · j.p. morgan global...

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