Professional Documents
Culture Documents
Investment Management
Investment Management
MANAGEMENT
Group 9
Almendral, Sharleen Dale
Limbo, Marife
Torres, Kimberly Rose
INVESTMENT CRITERIA
When considering various forms of cash investment, the treasurer
should first consider the safety of the principal being invested.
Accordingly, a company policy should limit investments to a specific
set of low-risk investment types. Also, some consideration should be
given to the maturity and marketability of an investment.
INVESTMENT OPTIONS
Here are the most common ones that have low risk, short maturity
dates and high levels of marketability:
Bonds Near maturity dates. A corporate bond may not mature for
many years, but one can always purchase a bond that is close to its
maturity date. There tends to be a minimal risk of loss (or gain) on
the principal amount of this investment, since there is a low risk that
interest rates will change so much in the short time period left before
the maturity date of the bond that it will impact its value.
Certificate of Deposits (CD). These certificates are essentially
term bank deposits, typically having durations of up to two years.
They usually pay a fixed interest rate upon maturity, though some
variable- rate CDs are available. There is a perception that they are
more secure than commercial paper, since CDs are issued by
banks, which are more closely regulated that companies.
INVESTMENT STRATEGIES
Earnings Credit Strategy. The most minimal level of investment
strategy, wherein the treasurer can do nothing and leave idle
balances in the corporate bank accounts.
Matching Strategy. It simply matches the maturity date of an
investment to the cash flow availability dates listed on the cash
forecast.
Laddering Strategy. It involves creating a set of investments that
have a series of consecutive maturity dates.
Tranched cash flow strategy. It requires the treasurer to determine
what cash is available for short, medium, and long-term investment,
and to then adopt different investment criteria for each of these
investment tranches.
The exact investment criteria will vary based on a companys individual
needs, but here is a sample of how the tranches might be arranged:
The short-term tranche is treated as cash that may be needed for
operational requirements on a moments notice.
OUTSOURCED INVESTMENT
MANAGEMENT
RISK REDUCTION STRATEGIES
A simple risk-reduction strategy is to avoid investments in the
securities of any single entity, in favor of investments solely in one or
more money market funds. These funds provide instant
diversification across a multitude of issuers, with the attendant risk
being constantly reviewed by a staff of risk management
professionals. The use of money market funds is especially costeffective for smaller treasury departments that cannot afford the
services of an in-house investment manager.
Sweep account is where funds are automatically swept out of the
concentration account at the end of each business day and moved
into an interest-earning account.
One-to-one sweep is where the companys funds are used to buy a
specific asset.
Credit
Credit
Credit
Investments in equity
securities available for sale
Investment in equity
securities available for sale
Cash
Cash
Cash
Credit
Debit
Unrealized loss on debt
securities available for sale
Investment in debt securities
held for trading
Unrealized gain on debt
securities available for sale
Investment in debt securities
available for sale
Gain on holding debt securities
Credit
Debit
Investment in debt securities
held to maturity
Unrealized gain on debt
securities available for sale
Investment in debt securities
available for sale
Gain on holding debt securities
Credit
Debit
Investment in debt securities
available for sale
Investment in debt securities
held to maturity
Unrealized gain on holding
debt securities
Credit
Debit
Investment in debt securities
held for trading
Loss on holding debt securities
Investment in debt securities
held to maturity
Investment in debt securities
held for trading
Investment in debt securities
held to maturity
Gain on holding debt
securities
Credit
INVESTMENT REPORTING
It is useful to have a summary - level report itemizing the
investment, current market value and return on
investment for each investment made.
This approach yields a quick view of a company s
overall level of investment and the results thereof. If the
investment portfolio includes debt, then the report could
be expanded to include either individual or average
maturity dates.
INVESTMENT
MANAGEMENT POLICIES
INVESTMENT POLICIES
- used to define the level of risk that a
company is willing to tolerate
- defines the exact types of investment
vehicles to be used (or not used)
RISK
Many companies have decided that they are
not in the business of making investments, and
so they avoid all risk, even though they may be
losing a significant amount of investment income
by putting all excess cash in US government
securities.
It is necessary to delineate which kinds of
investments are to be used, thereby keeping the
treasurer focused on a specific set of investment
options.
RETURN ON INVESTMENT
For the purposes of a companys short-term
investments, this should be the least of the three
investment criteria.
It is much more important for a company to
achieve high levels of liquidity and risk
minimization that is to achieve a high rate of
return.
FUNDS INVESTMENT
At least $___ shall be invested in overnight
investments and in negotiable marketable
obligations of major U.S. issuers. This policy
forces the treasury staff to attain a minimum level of
liquidity.
Investment Portfolios,
Transfer Between
The board of directors shall be
notified of the reasons for any
significant shift in the designation of
securities among the held - to maturity, available - for - sale, and
trading portfolios, and the
approximate impact on different
categories of income.
INVESTMENT MANAGEMENT
PROCEDURES
Thank You!