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Liquidity and risk management still a focus for cash investors, says JP Morgan study

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Liquidity remains a central concern for cash investors, with half of global cash assets placed in bank deposits, according to the JP Morgan Global Liquidity Investment PeerView 2014 survey.

Useage is most prevalent in Asia, where 68 per cent of assets are held in bank deposits, vs 48 per cent in Europe and 38 per cent in the Americas. Money market funds account for over one-third of cash assets in the Americas.
 
In an effort to control risk, the majority of respondents' investment policy statements define portfolio duration and credit standards for both longer- and shorter-term securities. Larger firms tend to be less conservative in their definition of permissible credit rating, which allows them to take on additional interest rate and credit risk.
 
A majority of respondents plan to stay the course with their current cash allocation through 2015 even in the face of low interest rates and regulatory concerns.
 
Firms with larger cash balances have a broader set of investment guidelines. A third or more of larger firms permit investment in asset-backed securities or mortgage-backed securities. Firms with relatively smaller cash balances typically have more limited investment options at their disposal.
 
Separately managed accounts (SMAs), customised portfolios that allow investors to define their own risk, security and liquidity parameters, account for a significant share of cash allocations. In the Americas, 11 per cent of cash assets are invested with SMAs or outside managers. Investor demand for SMAs can be seen as a clear demonstration of the need for yield.
 
In selecting an asset manager, the top three criteria in order of importance are performance/risk-adjusted returns, investment expertise and firm relationships.
 
"As investors anticipate a changing interest rate and regulatory environment, they are recalibrating their cash investment decision-making," says John Donohue, head of global liquidity for JP Morgan Asset Management. "This process — always important, never simple – can greatly benefit from a peer comparison. We believe our PeerView survey can serve as a useful industry benchmark."

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