According to JPMorgan Asset Management’s (JPMAM) 2005 Global Cash Management Survey, 33.8 per cent of respondents not currently using pooled investments said they were “considering investing” in yield enhanced funds, compared to 71.4 per cent for money market funds.
The research which was carried out in conjunction with the Association of Corporate Treasurers, found that while over a quarter of treasurers globally seek returns in excess of Libor, just 21 per cent were prepared to accept higher credit risk to boost performance. Respondents said they would not invest in securities or funds with a credit rating below BBB.
Rather than lowering the credit quality of their portfolios, treasurers are investing their cash for longer in order to improve potential returns. Forty-one per cent of respondents said they were willing to invest over a longer time horizon to increase yields.
Kathleen Hughes, European head of liquidity at JPMAM, commented: “The appetite for enhanced yield products varies from region to region. France is a more yield-driven market and French treasurers are more interested in an enhanced yield than their UK counterparts.”
Ms Hughes noted “more interest” in both AAA and AA-rated yield enhanced funds coming from the Nordic region and the Netherlands.
The survey also indicated a move away from unrated pooled investments towards higher-rated funds. Just 3 per cent of investors using pooled funds said they would invest in unrated vehicles, down from 27 per cent two years ago.
JPMAM’s AAA liquidity funds target seven-day Libid, while the AA funds target three-month Libor. Target return will depend on institution, but according to Ms Hughes, the “pick-up over liquidity” could be around 20 basis points in the case of JPMAM’s AA-rated Sterling Enhanced Fund versus the AAA Sterling fund.
RA
See special report on enhanced cash funds pp18-23
