CASH SEPARATELY MANAGED ACCOUNTS. Custom Cash Portfolios from a Global Leader

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1 CASH SEPARATELY MANAGED ACCOUNTS Custom Cash Portfolios from a Global Leader

2 CUSTOM CASH PORTFOLIOS DESIGNED TO MEET YOUR GOALS For today s global institutions, cash reserves help support a broad range of critical objectives. From ensuring continuity of business operations, to entering new markets and making strategic acquisitions, cash plays a key role in helping companies remain competitive. Taking a custom approach to cash management helps corporate treasury staff stay flexible, nimble and poised to respond to both tactical and strategic business needs. For organizations that segment cash into a range of different functions from daily liquidity to cash reserves State Street Global Advisors can be a valued partner. When it comes to managing strategic cash reserves, our experience operating custom separately managed accounts (SMA) can add significant value. If you are considering adding or replacing a manager for a custom portfolio, we would be delighted to advise you on best practices for choosing a strategic cash manager. We can also help you review and update your investment policy statement (IPS) to meet the needs of today s yield curve and available universe of cash securities. At SSGA, we ve partnered with clients for more than three decades to help meet their specific cash-management objectives. Drawing on the insights we ve gained from these long-standing relationships, we understand the liquidity and risk management needs of institutional cash investors, as well as the challenges and opportunities present in our current market environment. We bring a distinctive point of view to every custom portfolio we manage. Beginning with your investment guidelines, we analyze our extensive proprietary research to identify and select securities for your custom portfolio. You ll also have access to your portfolio management team, providing you with a flexible, yet disciplined, approach to investing that s responsive to your changing business demands and cash-management needs. 2

3 UNDERSTANDING YOUR CASH NEEDS At SSGA, we ve partnered with clients for more than three decades to help meet their specific cash- management objectives. Whether your organization needs an expert for daily operating cash, core short-term cash, or longer-term strategic cash, we can serve as a valued partner. A BROAD RANGE OF CASH PRODUCTS Global array of domestic and offshore institutional money market funds Separately managed accounts Custodial sweep accounts Sub-advised management OPERATING CASH Functions Funding daily operating expenses CORE CASH Functions Funding short to near-term operating expenses. Cash for stock buy-backs. STRATEGIC CASH Functions Funding strategic, largerscale transactions such as mergers and acquisitions. Securities lending cash collateral Exchange-traded funds Time Horizon 1 to 60 days Time Horizon 90 days to 1 year Time Horizon 1 to 3 years Potential Solutions Consider money market funds, other pooled vehicles, individual securities and cash separately managed accounts (SMA). Potential Solutions Consider individual securities, including time deposits, commercial paper, ultra short bond funds and cash SMAs. Potential Solutions Consider a cash SMA. 3

4 Cash Separately Managed Accounts NAVIGATING A NEW MARKET LANDSCAPE Since the liquidity crisis of 2008, corporate treasury staff and other cash investors have often found themselves facing several key challenges, including lower yields, changing credit risk and the need for increased transparency. A custom portfolio can help address many of these challenges. As one of the world s largest cash managers, SSGA offers custom cash solutions across multiple currencies, backed by an experienced, dedicated portfolio management and credit analysis team focused on cash. CHALLENGE Lower Yields Credit Risk Transparency Market Funds POTENTIAL BENEFITS Yield can be enhanced by actively managing duration and credit to exactly match your risk appetite, while remaining within your investment parameters. While ratings agencies continue to reassess credit risk for banks around the globe, your SMA allows you to focus on the credit qualities you feel most comfortable with, as defined by your IPS. An SMA will typically provide a broader array of reporting options than money market funds, helping corporate treasurers fulfill their reporting responsibilities with greater precision and ease. If you re rethinking how to segment your cash investments, a cash SMA can help complement your existing money market funds and may provide an attractive investment option for strategic cash reserves. 4

5 DEEP CASH INVESTMENT MANAGEMENT EXPERTISE As one of the world s largest cash managers, SSGA offers custom cash solutions across multiple currencies, backed by an experienced, dedicated portfolio management and credit analysis team focused on cash. The scale of our global operations offers broad market access, increased trading efficiencies and the potential for improved performance. With more than $418 billion in cash assets under management, we have the depth, access and expertise to build and manage cash portfolios with a high degree of diversification and efficiency. Our expert security selection backed by highly efficient portfolio management can help you achieve your investment objectives. $418 Billion in Global Cash Assets As of March 31, 2014 ASSETS BY VEHICLE $ (B) ASSETS BY CURRENCY $ (B) US Domiciled Money Market Pooled Funds Separately Managed Accounts Dublin Domiciled UCITS US Commingled Non-US Commingled $113.9BN $174.0BN $31.1BN $93.7BN $5.0BN US Domiciled Money Market Pooled Funds Dublin Domiciled UCITS US Commingled SMA AUD $113.9BN $31.1BN $93.7BN $8.9BN SMA CAD SMA EUR SMA NZD SMA USD SMA GBP $2.3BN $23.9BN $0.1BN $136.3BN $2.0BN 5

6 BUILDING A STRONG FOUNDATION FOR CUSTOM PORTFOLIOS THE ROLE OF YOUR IPS 6 6

7 Your cash investment policy statement (IPS) should be a living document, one that changes and evolves as your needs develop and the marketplace changes. In addition to reviewing your IPS, you may occasionally also need to review your overall framework for managing risk and your general performance review process for any investment managers you engage. A robust investment framework should help guide your internal resources for managing cash, as well as any external relationships you have with cash managers. UNDERSTANDING AND WORKING WITHIN YOUR CONSTRAINTS For cash investors with significant assets, success isn t about hiring the best asset manager with no constraints. Rather, we believe success begins with identifying and engaging those managers with the skills and resources to help you achieve your objectives within your established constraints. We understand that every corporate cash investor is different. For example, different cash investors may have similar investment guidelines but different fiscal year ends, different sets of cash flows and different securities they will consider holding. Aside from a thoughtful IPS, any cash investment managers you hire will need the infrastructure and expertise to keep track of your portfolio preferences and constraints. Managers will also require the flexibility and market depth to balance your risk and return objectives, allowing them to successfully work within your constraints, while providing liquidity as needed. IPS RESOURCES Sample/template investment policy statements available for: Corporations Association of Financial Professionals (AFP) Public Sector Government Finance Officers Association (GFOA) 7

8 Cash Separately Managed Accounts REVIEWING YOUR INVESTMENT PARAMETERS Call-out: An effective SMA manager needs a robust infrastructure, deep market expertise and flexibility to continually adhere to your IPS. Before hiring a new cash manager or replacing an existing one, review and update your IPS, especially if your original document was created prior to the 2008 financial crisis. With changes in market conditions, gaps can occasionally arise between the ideal portfolios of several years ago and available securities in the marketplace. If your current IPS doesn t meet the needs of today s yield curve and available securities, you may need to consider updating one or more dimensions of your policy. OPTIMIZING PORTFOLIOS FOR IMPROVED RETURNS To help optimize returns and achieve specific investment objectives, we work with clients to clarify and update investment guidelines to make their custom cash portfolio work harder in a challenging market environment. Many companies today could benefit from taking a fresh look at the risk parameters within their IPS, including: Maximum allowable maturity and target duration Permitted credit quality or ratings Permitted security types, sectors and asset classes Gain or loss constraints or additional budgeted limits within the portfolio Desired liquidity profile Maximum exposure to spread duration (WAL) 8

9 ENHANCING YIELD POTENTIAL Making minor adjustments and updates to permitted duration, credit quality and securities can help enhance your yield potential, while still focusing on principal protection. Duration, for example, plays a key role in cash investment decisions. Historically, many cash investors seeking daily liquidity have focused on duration of 60 days or less. For strategic cash portfolios (those not used for daily liquidity), extending duration to two years or beyond can also help increase yield and diversification in a portfolio by increasing the investable universe of securities available to your portfolio management team. Expanding the range of permitted security types, sectors and asset classes is another important lever for increasing yield and diversification in a portfolio. We frequently consult with investors to help them explore expanding their permitted securities to include sectors such as asset-backed securities that may offer higher yield potential while still maintaining a high credit quality and high level of liquidity. ESTABLISHING REPRESENTATIVE BENCHMARKS Short duration taxable indexes typically are not representative of how a custom cash portfolio might be constructed. For example, an index based on bond market issuance won t necessarily have the philosophical objectives of capital preservation and liquidity. An index also won t have constraints about when to realise gains and losses. Rather than establishing a fixed benchmark, investors who work with multiple managers may tend to compare the performance across those managers who run portfolios according to the same set of custom guidelines. Some investors may also choose to benchmark against alternatives to their custom portfolios, such as money market funds or the twoyear treasury note. Many cash investors today start with a treasury benchmark, which establishes an appropriate duration, and then determine if a custom approach is needed. As part of our core offering, we work closely with clients to design and adopt a benchmark that best approximates their desired portfolio structure, duration and yield. YOUR SMA CHECKLIST Conversation Starters with Investment Managers What are your total cash assets under management, including the breakdown by vehicle, strategy, client type and currency? What portion of your firm s overall business does cash as an asset class represent? How long have you been managing custom cash portfolios? What is the average account size for SMAs you manage? What is your commitment to maintaining a presence in the cash sector? What kind of access will your cash SMA clients have to their portfolio managers? What currencies do you manage cash portfolios in? How do you conduct credit research? How flexible are you about accommodating specific buy, sell and hold requests based on our current fiscal year end? Describe your approach to client service and relationship management for custom cash clients. Can your reporting systems accommodate our specific accounting needs? How do you define, monitor and manage risk in client portfolios? Are you willing to help clients create, review and/or update their IPS? What is your approach to benchmarking? 9

10 BUILDING ROBUST CASH SEPARATELY MANAGED ACCOUNTS When building custom cash portfolios designed to achieve your desired outcomes, our investment process begins with close collaboration between you and our portfolio management team. As a first step, we ll review your IPS to ensure that we fully understand your parameters and that your policy reflects what you actually want to achieve. If needed, we may offer suggestions about updating your policy to meet the needs of the current market environment. Whatever decisions you make about updating or retaining your existing IPS, we ll follow your final investment guidelines to the letter. 10

11 IN-DEPTH PROPRIETARY ANALYSIS AND PORTFOLIO CONSTRUCTION Once we fully understand your needs and investment parameters, we ll draw upon extensive proprietary credit research to help build your custom portfolio. We consider in-depth, independent credit research to be a key differentiating factor in the long-term success of any cash strategy. While the ratings agencies have often been slow to recognise changes in the marketplace, we make our own judgments about credit risk, the relative value of security prices and the potential for individual securities to deliver attractive performance. In a challenging landscape with lower yields and higher credit risks, independent credit research helps us build high-quality portfolios that seek to offer yield, liquidity and protection. DISCIPLINED APPROACH TO MANAGING RISK FOCUSED ON YOUR NEEDS At SSGA, we are experienced at building custom cash portfolios for some of the world s largest and most discerning cash investors. Our size and scale gives us the buying power to execute custom portfolios efficiently. Drawing upon proprietary research to understand and assess several dimensions of investment risk, we embed prudent risk management into every step of constructing and monitoring client portfolios. Our custom cash portfolios are designed to meet your specific needs for protection, liquidity and yield in a rapidly changing global marketplace. Risk management is embedded in everything we do, from the size of the positions we take, to how much exposure we have to certain sectors and how much overall risk is held in your portfolio. Our portfolio managers access daily custom reports that show the breakdown of risk factors, generating analytics in terms of yield and duration, total return, spread duration and convexity, all of which may significantly impact a cash investor s objectives of capital preservation and liquidity. We also partner with SSGA s independent risk management group (separate from the portfolio management team and a reporting line to the State Street Financial Risk team) to review portfolios on a regular basis. Through a well-defined process, we identify, quantify, report and manage risk exposures. GREATER BUYING POWER AND LIQUIDITY For cash managers, increased scale translates into more buying power when purchasing securities to build custom portfolios, as well as greater flexibility when selling securities to help clients meet their liquidity needs. At SSGA, we are well positioned and highly skilled to help our clients find the cash securities and target durations they may be looking for. Our relationships with dealers and direct issuers help provide access to a robust inventory of securities. And when clients need to liquidate portfolios quickly because of unexpected business opportunities or cash-management needs, we can help reduce the impact of exiting securities prior to their maturity dates through our relationships with a broad range of trading partners, driving better outcomes on the sale of securities. 11

12 About Us For more than three decades, State Street Global Advisors (SSGA) has been on a mission to help our clients and the millions who rely on them achieve financial security. With more than $2.4 trillion* in assets, we partner on a daily basis with many of the world s largest and most sophisticated investors, providing a disciplined, research-driven investment process and powerful global platform spanning asset classes across the indexing and active spectrums to help them reach their goals. SSGA is the investment management arm of State Street Corporation. * This AUM includes the assets of the SPDR Gold Trust (approx. $30.1 billion as of September 30, 2014), for which State Street Global Markets, LLC, an affiliate of State Street Global Advisors, serves as the marketing agent. Please note that AUM totals are unaudited. About State Street Corporation With $28.5 trillion in assets under custody and administration,* State Street is a leading financial services provider serving some of the world s most sophisticated institutions. We offer a flexible suite of services that spans the investment spectrum, including investment management, research and trading, and investment servicing. With operations in 26 countries serving clients in more than 100 geographic markets, our global reach, experience and combination of consistency and innovation help clients manage uncertainty, act on growth opportunities and enhance the value of their services. * As of 9/30/14 ** As of 9/30/14. This AUM includes the assets of the SPDR Gold ETF (approximately $30 billion as of 30 September 2014), for which State Street Global Markets, LLC, an affiliate of SSGA, serves as the distribution agent. We invite you to learn more about how SSGA Global Cash can effectively address your company s cash management needs. Contact us at: North America uscashclientservice@ssga.com EMEA emeacashclientservice@ssga.com +44 (0) ssga.com/cash State Street Global Advisors Worldwide Entities Belgium: State Street Global Advisors Belgium, Chausse de La Hulpe 120, 1000 Brussels, Belgium. T: , F: SSGA Belgium is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. France: State Street Global Advisors France. Authorised and regulated by the Autorité des Marchés Financiers. Registered with the Register of Commerce and Companies of Nanterre under the number: Registered Office: Immeuble Défense Plaza, rue Delarivière-Lefoullon, Paris La Défense Cedex, France. T: (+33) F: (+33) Germany: State Street Global Advisors GmbH, Brienner Strasse 59, D Munich. T: +49 (0) F: +49 (0) Ireland: State Street Global Advisors Ireland Limited is regulated by the Central Bank of Ireland. Incorporated and registered in Ireland at Two Park Place, Upper Hatch Street, Dublin 2. Registered Number: Member of the Irish Association of Investment Managers. T: +353 (0) F: +353 (0) Italy: State Street Global Advisors Italy, Sede Secondaria di Milano, Via dei Bossi, Milan, Italy. T: F: State Street Global Advisors Italy is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Netherlands: State Street Global Advisors Netherlands, Adam Smith Building, Thomas Malthusstraat 1-3, 1066 JR Amsterdam, Netherlands. T: +31 (0) State Street Global Advisors Netherlands is a branch office of State Street Global Advisors Limited. State Street Global Advisors Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Switzerland: State Street Global Advisors AG, Beethovenstr. 19, CH-8027 Zurich. T: +41 (0) F: +41 (0) United Kingdom: State Street Global Advisors Limited. Authorised and regulated by the Financial Conduct Authority. Registered in England. Registered Number: VAT Number: Registered Office: 20 Churchill Place, Canary Wharf, London, E14 5HJ. T: F: The views expressed in this material are the views of SSGA Global Cash through the period ended March 31, 2014 are subject to change based on market and other conditions. This document contains certain statements that may be deemed forwardlooking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Past performance is not a guarantee of future results. Investments in asset backed and mortgage backed securities are subject to prepayment risk which can limit the potential for gain during a declining interest rate environment and increases the potential for loss in a rising interest rate environment. Although bonds generally present less short-term risk and volatility risk than stocks, bonds contain interest rate risks; the risk of issuer default; issuer credit risk; liquidity risk; and inflation risk. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2004/39/EC) and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor s or potential investor s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information. Investing involves risk including the risk of loss of principal. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA s express written consent State Street Corporation. All Rights Reserved. ID2661-INST Exp. Date: 04/30/2015