by Thomas C. Mullen, Northeast Regional Manager, Global Liquidity Investment Solutions, Bank of America Merrill Lynch
The continued low interest rate environment, ongoing regulatory reform and record stockpiles of corporate cash have contributed to a renewed focus on the investment policy process. While most large companies have an investment policy statement to help guide their cash investments, many privately held or smaller firms may not.
It is considered a best practice for companies without an investment policy to implement one, and for those who do to conduct frequent reviews. Refreshing corporate investment guidelines can help clarify risk tolerance, prioritise investment objectives, and keep key stakeholders within the company current and up-to-date on cash and investment priorities.
When establishing investment policies, many organisations strive to balance a desire for safety and liquidity against a competitive rate of return. With interest rates and investment spreads being so low, companies have not had much incentive to seek greater returns. The global economy is gradually improving, however, and companies are beginning to deploy cash in more traditional ways to take advantage of evolving growth. At the same time, financial regulatory reform is expected to change the way banks view some deposits, prompting a need for companies to rethink how they optimise cash. This will also require close attention to guidelines related to short-term investments.