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Cash & Liquidity Management
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Cash Conservatism

by Jonathan Curry, Head of European Cash Management, Barclays Global Investors, and James Finch, Head of Liquidity Sales, EMEA, Barclays Global Investors

The recent market turmoil, the origin of which can be traced back to the US sub-prime mortgage market, has created new challenges for clients with large cash balances to manage. As investment funds and banks around the world have been impacted, investors are becoming increasingly cautious regarding where and how their cash is invested.

Seeking safer havens

Investors in Europe have reacted swiftly to the onset of this liquidity crunch, seeking safer homes for their cash investments. Assets perceived as likely to provide a greater level of protection from the contagion have enjoyed greater demand.

The need to diversify risk within cash investments has emerged as a clear theme and has become a more significant driver of investors’ decisions. The underlying motivation is the realisation that the path of contagion has been difficult to predict. In other words, it has been difficult to foresee which assets or individual issuers could be hit next by a crisis of confidence.

As even the top-tier of the global banking sector has fallen victim to the decline in market liquidity and confidence, investors’ appetite for risk in their cash investments has moved firmly into conservative territory. Where investors had previously sought a greater yield, their focus shifted dramatically during 2007 to investing in lower-risk and more stable assets.