“Optimise cash management via the money market and short-term bonds.” What are the options for managing cash in the current environment of negative interest rates? For Philippe Renaudin, Head of the Money Market team at BNP Paribas Asset Management, and Patrick Barbe, Head of the Euro Bond team, it is still possible to generate competitive returns through active management and opportunistic strategies.
The investment environment will remain very tight over the next few quarters. In Europe, the ECB is unlikely to raise its key rates in 2018 but it will phase out its quantitative easing policy, which will affect the money market and bond market. We could see a steady rise in interest rates and some renewed volatility. The challenge for fund managers will be to ride the re-steepening of the yield curve via opportunistic strategies, and for investors it will be to adjust their portfolio allocations to these new market conditions.
The amounts of liquidity to be invested remain substantial. Corporate and institutional investors used to be able to leave some of their cash in their current accounts. But remuneration from these is currently negative, which is pushing these same investors to transfer some cash into the money market and short-term bonds – especially as these products have two advantages, risk diversification and daily liquidity. This situation is likely to continue through this year and even into 2019.
The funds must have a solid performance track-record, which also implies good risk control. Moreover, they must be managed by experienced teams that are disciplined and rigorous in their investment process. BNP Paribas Asset Management’s team has 20 managers divided between Paris, London and New York and specialised in terms of sector and country. Each of them offers investment strategies, and the heads conduct the final selection.
Depending on the investor’s objective, he or she could invest in money-market funds, as it offers the most liquid instruments , which target returns above Eonia
In our view investors should also consider active management where opportunistic strategies seek to exploit shifts in the yield curve and volatility. We run a number of cash equivalent strategies ranging from funds whose objective is to take risks to obtain positive yields by actively managing the maturities of the portfolios holdings.
Enhanced cash strategies constitute another alternative. We run a strategy that seeks to tap into all opportunities that arise on the bond market without constraints in terms of maturity, country or sector. There’s just one condition: volatility must be below 0.5%.
These strategies are are all part of BNP Paribas Asset Management’s ‘Liquidity Solutions’ offering, which has more than EUR 75 billion of assets under management*.
To better address investors’ growing need for cash management, a dedicated pan-European team has been set up.
On the one hand, they will increase investment constraints, such as the obligation to conduct in-house credit research and stress tests.
On the other hand, they will enhance transparency and reporting obligations. Investors will, in effect, have better information in selecting funds. As for us, we will be ready for the 2019 deadline with an offering that, for the most part, already complies with regulatory constraints.
*Source: BNPP AM, as of end of January 2018
Investments in the fund are subject to market fluctuations and the risks inherent in investments in financial securities. The value of investments and the income they generate may move upward or downward, and it is possible that investors will not recover their full investment. The aforementioned funds incur a risk of loss of capital. For a definition and a fuller description of the risks, please refer to the fund’s prospectus and KIID. Before subscribing to the fund, you are urged to read the most recent versions of the prospectus and KIID, which are available on our website.
