The high cost of cash is ushering in the next generation of liquidity management.
Institutional investors are looking for more control over investments, including higher-yielding ways of putting cash to work by extending duration and taking more credit risk in segregated accounts, according to managers.
In a new development reflecting the post-Lehman environment, additional returns are also gained by increasingly lending fixed-income securities within the liquidity portfolio.
Historically, cash was “a bit of an afterthought,” said Kathleen Hughes, managing director and head of global liquidity management at Goldman Sachs Asset Management in London. “In the past few years, investors such as sovereign wealth funds, insurance companies, hedge funds and commercial banks (among others) have been taking a more active approach to cash.
“Now some pension funds are starting to realize the benefit of managing cash more strategically,” Ms. Hughes added. She declined to name the funds.
While most pension funds have not yet made significant changes to cash management, some of the world's largest funds are thinking differently.
Among them is the 470 billion Danish kroner ($87 billion) ATP, Hilleroed, Denmark.
“It has become more important to consider "what is the price of cash,' ” said Anders H. Svennesen, vice president and beta portfolio manager for ATP. “Before the financial crisis, everything in the short end (of the yield curve) pretty much traded at the same level. Today there is a difference.”