more-arw search

Q&A Forum

Investment Policy Guidelines

I'm interested in polling public company folks regarding their Investment Policy - in particular, if you are willing to, could you share your responses to the following:

1 - in the short term ratings, will you permit A-2/P-2 rated instruments, and if so, do you limit the maturity to shorter than 270 days, like 30 or 60 days? 

1a - On your longer dated instruments, say out 2 or 3 years, what is your minimum rating - single A?  AA?

2 - when looking at your banking relationships, if you take advantage of your bank's deposit rate which may exceed money market fund rates in your liquidity funds, what is your % maximum invested with your relationship bank or banks?

I will post a generic investment policy out on the resources later, but wanted to get these questions out for polling, thanks much./jeff



russell hoffman
Title: director
Company: KPMG
(director, KPMG) |

In response to your questions:
a) I would say that very few conservative companies invest in A2/P2 paper or have as part of policy. If they do it's limited to short dated highly liquid paper.
b) A is fairly common
c) Can't say there is a universal dollar #. Depends on your overall conterparty expsosure limits and concentrations across banks.

Hope that helps

Topic Expert
Jeff Chase
Title: Advisory CFO
Company: Hazelcast, Juicebox Energy, and Social I..
(Advisory CFO, Hazelcast, Juicebox Energy, and Social Inertia ) |

The argument I've heard is that A2/P2 was relaxed in the last year, for obvious reasons of squeezing out those good quality yields and dipping down a bit on the rating guidelines. Thanks for the feedback, appreciated it.

William Rigger
Title: Assistant Treasurer
Company: Towers Watson & Co.
(Assistant Treasurer, Towers Watson & Co.) |

Jeff, my experience is that A2/P2 is a non-starter, unless you allow as an exception on a name-by-name basis. You may want to get granular enough to deal with split ratings though, as many good companies have two tier-1 ratings, and one tier 2. I notice this a lot with US subs of foreign banks.

I would advocate that Single A is OK, but it all boils down to whether you can sleep at night. You should be able to get some cumulative historical default data from Moody's website that may be of help in substantiating what you want to do.

I would suggest staying away from percentages by bank for your deposits. If you cash amounts change over time, as you would not want to stop a bank out at 5% of a $50 million balance, if you would allow them 5% of a $200 million balance six months later. For this reason, I like hard dollar limits.

Drew Bauer
Title: Vice President, Treasurer
Company: Guess?, Inc.
(Vice President, Treasurer, Guess?, Inc.) |

1A. As a pubic company Treasurer I always chose the more conservative ratings of A1/P1.

1B. Single A rating is still several notches into investment grade. If the issuer is properly researched and analyzed, a single A issuer can provide a favorable yield for the level of risk.

2. I think the policy should address the credit profile of each bank to properly assess counterparty risk. Actual dollar amounts might be more desirable to a fixed percentage.


Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email [email protected] to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.