Releasing the Value of Cash

• Deliver investment performance when interest rates are at historic lows
• Increase control and reduce operating risks
• Focus on new priorities and reduce costs

THESE ARE JUST SOME OF THE PRESSURES facing investment managers as they plan their responses to a post-financial crisis world. And they apply to the management of liquidity just as much as they do to investment in securities and derivatives.

In today's tough market environment, where managers need to demonstrate a robust approach to their fiduciary responsibilities, getting cash management and investment right is more important than ever. Getting it right, however, is no easy task. While the key attraction of certain funds to end investors is their simplicity, the funds' trading, settlement and safekeeping infrastructures can be anything but. The often complex cash account structures scattered across custodians, payment banks and prime brokers can be a silent enemy to efficiency, transparency and investment performance.

For many investment managers, a strategic review of liquidity management can identify costs to strip out, ways to mitigate operating risks and opportunities to deliver real additional investment performance. However, the effective implementation of anything more than a rudimentary centralized investment strategy when cash balances are scattered across multiple providers, currencies and funds can seem like a daunting heavy lift.

The Heavy Lift
Whether investment managers currently monitor and invest cash themselves, or let those processes rest with their individual providers, the same market challenge remains: When operating costs are under pressure, how do you release more value from your cash balances-and assume greater control over the liquidity management and cash investment process?

Cash Forecasting
The more fragmented an organization's cash, and the more custodians and brokers involved, the more onerous it can be to identify and extract individual cash positions to create an investable balance forecast. The forecast needs to be available at the very start of the cash trading day when market liquidity is high and the best rates can be achieved. Yet it also needs to take into account same-day activity such as derivatives margin requirements, foreign exchange and cash aggregation standing instructions.

Foreign Exchange Execution
Minimizing idle balances in nonfunctional currencies will maximize cash investment opportunities. And it's clear that netting all FX requirements-both trade funding and asset entitlement-based-can achieve better pricing. However, it can be cumbersome to execute the additional transactions required and to aggregate all FX deal flow in order to take advantage of available netting opportunities.

Cash Concentration
An efficient and effective cash mobilization and funding process for balances held at multiple providers demands time-critical processing power. It also requires the ability to both ensure that available liquidity is directed wherever and whenever it is needed to fund trading activity, and to preposition all inbound excess funds for investment.

Cash Investment
Aggregating investable balances allows for the consistent, systematic application of investment guidelines across all funds, and is the key to optimizing yields and controlling counterparty exposures. This level of yield enhancement and control requires time-critical, multiregional trading and settlement expertise; access to trading relationships; broad instrument choices; and a robust and effective process for monitoring counterparty credit risk.

As if that isn't enough, the impact of all the FX, cash concentration and cash investment activity—including individual fund allocations and exposures—needs to be accurately reflected in front-office trading and investment accounting records, and ready for the next day.

Releasing Value, Increasing Control
Through a new offering known as Institutional Treasury Management, J.P. Morgan seamlessly integrates the individual processes critical to achieving effective liquidity management. This dynamic, end-to-end solution combines our market-leading foreign exchange, liquidity management and agency cash investment capabilities. It helps investment managers release the value of their cash balances, even if held across multiple providers.

We work with clients to set parameters for controlled execution of the cash management process, enabling them to turn over to us many of the associated time-critical operational tasks and risks. Despite relinquishing these day-to-day activities, clients can gain greater visibility and control over the entire process, and can more effectively define and implement their cash strategy.

J.P. Morgan is uniquely qualified to do this heavy lifting. As a provider of middle- and back-office processing for investment managers, we have the information and infrastructure to create a unified cash position as a basis for cash forecasting, centralizing FX execution, cash concentration and cash investment.

However, investment managers do not need to use J.P. Morgan as their investment operations provider to be able to take advantage of this capability. The Institutional Treasury Management model can also be driven by J.P. Morgan's custody records, augmented with information provided by the investment manager at the start of the day.

Institutional Treasury Management offers many benefits:

• Centralized FX execution, which maximizes netting opportunities and minimizes idle balances in nonfunctional currencies.
• Cash concentrated into major functional currencies to optimize investable balances and minimize single provider concentration risk.
• Improved risk-adjusted investment returns resulting from better rates applied to consolidated cash balances.
• Consistent application of tailored investment guidelines by global, expert trading desks, and the ability to implement changes in investment policy quickly, as required.
• Access to the research capabilities of J.P. Morgan Asset Management for the monitoring of investment counterparty credit quality.
• Increased transparency through integrated reporting, coupled with investment accounting feeds, to ensure that rates, performance, exposures and accruals can be tracked at all levels—from individual cash account through to total group portfolio.
• Fully automated processing, helping to reduce execution errors and operating costs.
• The opportunity to mobilize other cash types—corporate balances, subscription and redemption float, etc.—and to invest them in the same structures with the same level of control.

J.P. Morgan is dedicated to working with clients to design a customized framework to help them improve performance and meet everyday business challenges. From forecasting and FX to cash concentration and investment, Institutional Treasury Management gives investment managers a practical way to deliver the sustainable value of cash, and ensure that liquidity management both supports and enables their strategic business goals.