ESGInvestment Management

Navigating Prime Funds and Social Impact Investing

By November 12, 2020November 24th, 2020No Comments

Key takeaways from the Treasury Investment Managers’ Peer Group 2 2020 second-half meeting, sponsored by DWS. 

By Joseph Neu

Reclaiming prime funds. Members are still skeptical of prime funds, yet they would not have been sorry had they kept their cash in them through the Covid crisis.

  • Prime funds could be helped going forward by some tweaks to the money market reform regulations concerning gates and fees, plus a pickup in CP issuance next year. However, what prime funds may really need is a publicity campaign highlighting how well they did in the Covid crisis and detailing the sources of liquidity at their disposal, including the Fed.
  • SMAs (separately managed accounts) to screen holdings for unique corporate risk preferences, meanwhile, will continue to proliferate.

Social impact screens on debt. The sophistication of ESG investment options—including social—continues to grow.

  • For corporates able to extend their cash investments to asset classes such as muni bonds or mortgage- or other asset-backed securities, asset managers are making it easier for you to select bonds or securities tied to specific social impact projects or communities.
  • In the past, this cherry-picking was employed to maximize risk-adjusted return or to mitigate credit risk. Now it can be used to micro-target communities and projects that companies want to support in line with ESG, diversity and inclusion (D&I) or corporate social responsibility (CSR) initiatives with their excess cash.
  • Credit risk concerns don’t disappear, especially under CECL. While yield benchmarks are easier to beat, preservation of principal is still a priority.

Balancing finance with impact metrics. Corporate cash investors continue to care deeply about their fiduciary responsibilities as they look to invest cash for positive social impacts.

  • Needed are better standards and consensus on frameworks and metrics for social impact investments. Then, corporate treasuries will need to incorporate them into policies and procedures governing cash investment.
  • It will be interesting to see what, if any, ESG metrics rise to the level of financial benchmarks after policy and procedures projects—that many members are launching or planning to launch next year—are completed.
Justin Jones

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