Optimising treasury asset investments in a higher rate environment 

Traditionally, many institutions have entrusted their treasury assets to banks, where they have been largely held in saving accounts. However, now that UK base rates have risen significantly this approach may no longer be optimal to manage treasury assets. As a result, an alternative approach is emerging – in Mercer’s view, one that is likely to generate higher returns in a still conservative manner although this is not guaranteed and future performance may go up or down depending on market conditions. This involves the diversification of treasury assets across a range of short-duration fixed-income funds. It also involves the use of institutional quality investment managers.  

However, one constant is the need for treasury teams to manage their cash positions in a way that ensures they can meet their immediate and evolving outgoings. Investing in a tailored portfolio of suitable short-term investments, and having the capability to adjust this portfolio based on evolving cash-flow requirements and market conditions, is therefore particularly important.

The optimal strategy for treasury portfolio management lies in adopting a comprehensive approach. This entails integrating cash flow planning, conducting thorough analysis of investment options, implementing robust governance, and addressing the unique challenges faced by educational institutions.

More specifically, this approach can be broken down into the following steps:

• Objective and policy setting
• Ongoing investment strategy advice
• Manager research
• Access to highly rated managers at extremely competitive fees
• Optimised cash flow modelling
• Dynamic management of the portfolio incorporating the evolving requirements of the university and market conditions
• Efficient implementation
• Integration of responsible investment requirements
• Integrated risk management focused on investment risk and reputation
• Tailored reporting