Source: US Dept. of Treasury End of Day
GPA uses three components to guide strategic investment advice: accountability, confidence and transparency. These elements determine the appropriate balance of risk and return—and they include duration, asset allocation and cash flow. These components work in tandem with the policy objectives of liquidity, safety and return. Read more below or click the link to connect with us today.
Accurate cash-flow analysis plays an imperative part in managing operating funds and bond proceeds. We assist clients in incorporating expectations of cash into the strategy that will help optimize returns. Having too much liquidity will lower yields on the overall portfolio in today’s market environment. Having too little liquidity exposes the portfolio to potential price exposure if securities need to be sold when rates are higher.
We collaborate with clients to monitor and analyze asset allocation and maturity sector allocation, which helps provide safety in their portfolio. The portfolio manager’s outlook regarding issuer risk and price risk underpin the strategy and portfolio positioning. For example, we work with the client to ensure that the portfolio is diversified in issuer name, security type and maturity sector. A client’s outlook helps determine both maturity and asset types.
Duration exposure is the primary driver of return for fixed-income portfolios. Historically, the longer the maturity, the higher the return over long investment horizons. We help clients consider the risk/return trade-off as longer maturity poses a greater price risk. We mark the portfolio at a predetermined benchmark in order to help achieve returns that are consistent with a client’s risk/return tolerances and expectations.
Our strategies incorporate known cash outflows to determine if there’s an opportunity to purchase an investment versus maintaining higher-than-needed balances in liquid, low-interest earning accounts.
We’ve refined an approach that manages the expectations of liquidity—which includes balances established by clients for daily operating and project funds—and the investment of core funds. During the strategic planning process, we collaborate with clients to establish these liquidity ranges that will manage expectations and levels of cash needs. We continue to review the liquidity, monitor the components, and manage the fluctuating cash flows during revenue inflows and project funds.
We work with the finance team or designee to manage cash-flow fluctuations. We review the overall portfolio balances of the operating fund annually and incorporate the expected budget flows for the following two years. Incorporating cash-flow forecasting into the ongoing investment strategy provides confidence regarding project fund outflows. Capital project funds that have a cash-disbursement schedule will also be updated and incorporated into the strategy.
Changes are inherent in all fixed-income investment portfolios. Analyzing a client’s portfolio in light of the current market, we are able to proactively manage the price changes by using market benchmarks. Managing expectations of price volatility is key to portfolio risk and return management, which we support with reporting and planning.