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3 MIN READ
INVESTMENT OPERATIONS

What You Need to Know Before Moving into SMAs

What You Need to Know Before Moving into SMAs

INVESTMENT OPERATIONS

There is never a slow time when you work in treasury because the treasury world is always changing. Treasury teams have to stay on their toes to keep ahead of these changes, whether they are driven by operations, business financial needs, macro-economic events, M&A, or a global pandemic. 

Now, corporations across the board are determining how to position themselves for when rates may rise and business returns to some level of normalcy. For some, that means moving out of bank and money market fund deposits and into higher yield fixed-income products, which means hiring investment managers.

In my own experience working in corporate treasury, I learned there are a few things to consider before hiring an investment manager and moving into separate accounts. It’s also essential to have the right tools in place to retain control and transparency over your investments and ensure your investment manager is working for you. 

Four Criteria to Consider Before Hiring an Investment Manager

Service  

This was the biggest component I took into consideration when deciding who to work with. Ask the managers you’re considering if they reach out proactively rather than leaving it up to you. Pay attention to see if they really listen to you. Maybe most importantly, ask if their goal is to make your job easier and your team look good. When you are in the trenches, you want someone that is on call to help with whatever is needed, listens closely to your goals and objectives, and strives to help your team. 

Returns 

When evaluating managers, you’ll want to make sure they show you data on “relative” AUM and portfolio structures. You can provide your investment policy in advance and have them structure a mock portfolio to prove returns. This will help guide your questions and identify who supports your needs best. Ultimately, the highest return is best, assuming the credit and duration parameters meet your risk profile.

Fees 

This is really the only area you can control in treasury. We cannot control yields, servicing, or many other things, which is why I did the best I could to negotiate custody and manager fees.

Market Outlook 

Another area to watch for when evaluating managers is to make sure they are not just investing in the same thing as the index or that they are not alone in their economic assumptions. You can hire ultra conservative managers or those who are a bit more aggressive. I looked for managers who had a great pulse on the market, a strong credit team, and someone that was willing to put me in front of their economists. Allocation and selection within a sound economic policy is a key for partnership success.

Ensure You Have the Right Tools in Place to Move into SMAs

Before moving into SMAs, it helps to have the tools necessary to “manage your managers,” so to speak. This includes being able to actively monitor compliance, risk, and performance for your portfolio.

An important component of that is proactive compliance monitoring. You want to ensure that you have oversight and transparency into your investment policy and to ensure your manager is adhering to the policy limits you have in place. With Clearwater, for example, you would automatically receive a notification of a compliance violation as soon as it occurs and can see exactly where that violation happened.

Clearwater’s risk tools keep you informed of credit events, exposure limits and other factors that tie into compliance as well. In addition, you can monitor your portfolio performance to track returns and compare multiple accounts within your portfolio. 

These tools empower you to have informed discussions with your managers and retain control over your investments.

To learn more about how Clearwater can help you move into separately managed accounts, click here to schedule a personalized meeting with our solution consultants. 

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