Wells Fargo's McMichael: AFP Recap
The latest Wells Fargo Daily Short Stuff, written by Vanessa Hubbard McMichael, gives a brief "AFP 2024 Recap" and "corporate investor perspective." She tells us, "We attended the annual AFP conference this week, one of the largest gatherings for corporate professionals in Treasury roles, both moderating a panel and listening to other investment-related sessions. The focus for our panel was investment policy changes driven by recent economic and market adjustments (e.g., inflation, both lower and higher rates, bank counterparty risk/uninsured bank deposits, prime money market funds, etc.). For the investment panels we listened to, there was a general theme, and this was corporate practitioners discussing how they simultaneously use self-directed and managed fixed income investment solutions." The piece continues, "While we work with clients to equip them for a self-directed investment strategy, there can be merits and value for a portion of cash to be externally managed if a corporate organization wants to take on more duration and/or credit risk but is limited on resources. `For corporate organizations investing in government securities (Treasuries, Agencies/GSEs, and high-quality SSAs) or high quality credit securities, a self-directed investment strategy is typically the appropriate course, and we heard this outright supported by practitioners during the conference. While we understand that Treasury staff is typically lean, Treasury staff is closest to the cashflows and is therefore the best suited for understanding the organization's investment opportunities, particularly when making decisions around tenor." It adds, "For corporate organizations that want to explore the lower spectrum of the investment grade space, use the outer most bounds of permitted maturity limits or add structured products that require advanced modeling to assess value, these are the instances whereby an externally managed solution makes sense in the absence of internal expertise. As the easing cycle continues and robust interest income weakens, it is going to be increasingly important for corporate organizations to maximize and stabilize investment earnings without stepping beyond risk comfort; a reality discussed by practitioners at the AFP conference. Thus, if we are limited in scope to the amount of credit and duration risk that can be pursued, a self-directed investment strategy, rather than a fully externally managed one, is the most beneficial way to accomplish this."
