Given the intersections where market and economic power are constantly changing, it is wise for all type institutional investors to consider corporate approaches to manage investment assets. The overall investment management framework, from portfolios, focusing on fluid -led and income, to responsible insurance pools, can benefit any institutional investors.
Enterprise approach and return strategy only
To put it simply, the enterprise approach to investment management is an approach that takes into account the effects of investment risks in the wider and financial health of the organization, and to deal with the expected returns of Portfolio alone. To explain this concept, consider the medical providers (Fig. 1) who monitor the cash at hand (Fig. 1) to inform the investment strategy. In a return -led approach, providers may only consider only molecules (unlimited cash and investment) in which the return of the investment market has a clear effect. In contrast, sharp capital managers usually have a significant stress of many providers in recent years, given the increase in the volatility of the financial markets and the increase in supply, so in recent years, molecular and denominator (cash -based (cash -based). I feel that it is advantageous to consider the interaction of operating costs). And labor costs.
Figure 1.
In this example, operating costs are affected by many factors, including drugs and other supplies, and, of course, labor markets. The cash on hand may be reduced for a decrease in liquidity (the ability to convert resources into cash, the ability to convert molecules), increase costs (denominates), or both. Hospital systems that focus only on investment revenue may be tempted to make a serious assignment to non -fluid alternative investment strategies.
But what happens if the investment market is brought back in a challenging sales environment? The possibility of the result is the day when hand cash shrinks on both sides of the fraction. The molecule falls into a negative return, and the denominator rises due to an increase in cost (Fig. 2).
This “Double Wamy” scenario has a higher volatility of these strategies, so it is particularly challenging for a provider who invests too much on non -lighter alternatives. There is a possibility. The potential negative result is a combination of an increase in operational costs that can violate fluid debt contracts and a larger investment loss, as you can see in the “non -fluid -negative return and increase cost” in Fig. 2. is.
However, providers who subscribe to the enterprise approach may perform more measured assignments to non -fluid alternatives with the need to maintain fluidity in a challenging operation environment. As described in the “Liquid -only -increased costs” line, this provider may still be reduced to the fact that it has not declined sharply enough to violate the contract.
An investment strategy with non -mobilized alternatives may provide more negative side risks, although it may provide a greater return potential. This is an important consideration for increasing the liquidity when the operation cost increases.
Figure 2.
Features of successful enterprise approach
Several documents are required to analyze the current investment strategy of the organization, such as the investment policy, expenditure policy, and current investment statements. These documents provide details on how the current asset allocation is different from the target of the investment policy, and how it is different from the opportunity that may occur from integrating financial statements with investment goals. Masu.
Core financial statements -balance sheet, profit and loss statement, and cash flow statements -can tell you how investment risks have historically affected the overall financial health of institutions. On the other hand, budgets, multiple years, and other operation assumptions can help you develop and implement long -term strategic visions.
Consider a university that predicts gifts and other contributions for the donation, assuming that some of the donations will be sent to the campus facility maintenance and construction. The overall approach can help you know how your investment performance can support or interfere with projects that affect other important sources, such as tuition and fees.
For example, what happens if it's not enough to support the completion of a capital project, which is important in a timely manner? Can the university achieve the registration goal? What will happen to the tuition revenue after that? Or, if borrowing from a donation is possible, how long is the long -term cost from a short -term low -term net asset, maintenance, and engagement? Approach only for returns may give advice on how to maximize net assets, but the enterprise approach is achieving goals by examining how each factor affects the range of potential results. It may be focused.
The customized benchmark, which reflects long -term asset allocation goals, is worth almost all investment policy statements in order for an organization to measure the success of investment. However, it is not always the case that the whole picture is captured, so be aware that the definition of success is completely linked to performance compared to benchmarks.
Consider a real estate and victim's insurance companies that have increased the number of bond sensitivity (interest rate sensitivity) in a low -cost environment after the 2008 financial crisis to improve profits. Many insurance companies may feel that they have been forced to extend the period to increase the investment yield and respond to benchmarks, but the market value of this bond portfolio is 2022 with a federal preparation system. It would have dropped sharply because it began to raise interest rates in the spring of the year. Figure 3.
The long -term bond portfolio lost more value compared to a shorter portfolio during the Fed's 2022 and 2023 rate hiking cycle.
Figure 3. U.S. Ministry of Finance Securities Market Yields quoted on an investment basis for 10 years
For many of the year, the “fire sales” type scenario has become a reality for many people, as inflation and catastrophe -led losses have caused confusion in industry finances and created a downward spiral. The overall approach to investment management can consider these elements in integrated models. Considering the value of investment revenue, the possibility of an increase in loss, the advantage of matching the asset period with the debt that matches the debt, and probably the most important thing about how investing and sales activities are performed. please. It affects the surplus of tandem insurance policyholders.
Understanding how investment decisions play a role in smooth indicators, such as the ratio of premiums to surplus of insurance policyholders, is an important factor in investing strategies. In my opinion, this is a victory for organizations that place premiums for corporate governance.
Mow the reward
I think it is an enterprise approach to transcend the era of investment management and a classic task list of institutional investors. An organization that implements an investment program in a wide range of financial indicators of success can benefit from healthy investment fields for many years.
The views described in this article are from VINCE KLOS, PNC Financial Services Group, Inc. Or it should not be interpreted as an affiliated company. “PNC Instital Asset Management” is PNC Financial Services Group and Inc. It is a registration mark.
