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INSTITUTING   A   CASH   INVESTMENT   POLICY   STATEMENT

What is a cash investment policy statement?

 

As investors continue to navigate a shifting interest rate environment globally and face reforms and new regulatory standards, a short-term fixed income investment policy statement—or cash IPS—offers clarity, giving everyone in an organization, from the investment team to the board of directors, a common understanding. A cash IPS provides financial transparency and a mechanism for internal control. It addresses the essential activity of cash segmentation—categorizing cash by liquidity needs (distinguishing among operating, reserve and strategic segments), enabling firms to seize the varied opportunities available and deploy a range of appropriate, optimal cash investment strategies.

WHAT DOES A TRADER AT A HEDGE FUND DO?

What does a Trader do?


A professional trader is of the most desirable jobs at an investment bank – but what do traders actually do at investment banks? First of all, roles and objectives tend to be a bit more complex than just buying and selling stocks to maximise profits. Let’s review thetwo main types of traders at an investment bank. Market makers The large majority of traders at investment banks are market makers. A market maker is essentially a middle-man; the bank customers will call him to buy or sell a financial instrument, and his job is to offer them a price, find other customers to buy or sell to, and pocket the price differential (commissions). Note that the market maker is taking a calculated risk and this is why he would be called a “trader”. For example, if he buys shares in Google from a customer and the price falls before he is able to find another customer to sell to, he risks making a loss. This is why a market maker will take a spread on each stock he buys, either buying at a slight discount or selling at a slight premium. Using that previous example, as a market maker you can offer to buy the Google stock from your customer at $1,000, and then offer to sell it at $1,001 to another customer. The $1 may not seem much, but the trading volumes are very large,so the profits can be substantial. Proprietary traders A proprietary trader does not deal with clients, but buys and sells financial instruments on her own account, aiming to make a profit. She is using the bank's money, and is allocated an amount of money to trade with. This is much riskier for the investment bank, and this is why the proprietary traders remain a minority. These traders are kept separate from clients, so that they cannot engage in what is called "front-running". Front running is placing orders ahead of a client to benefit from a movement in price. For example, if your client calls you to place a very large order of Google stock that would move the share price, the trader could theoretically place an order beforehand and benefit from the price increase afterward, thereby "piggy-backing" on the client.




What Does a Trader At a Hedge Fund Do?


Hedge funds are pools of capital from various investors, used by hedge fund traders (also called Portfolio Managers) to generate profits in financial markets. These traders can be used to trade various types of instruments: equity, debt, derivatives, etc. Also, traders can make money in rising and falling markets. Traders at hedge funds basically have the same job as proprietary traders in investment banks, except that in a hedge fund they are trading investors' money as opposed to using the investment bank's money. Hedge fund traders get a cut of the profits they generate, but also charge a "management fee" to cover the costs of running the business: IT infrastructure, rent, basic salaries, etc. The cut of the profit they generate is paid out as bonuses to the traders, but typically a part is reinvested into the hedge fund.




Why would you work at a Hedge Fund as opposed to working at an Investment Bank?


The proprietary trading business at investment banks has been declining over the past few years, as it is very risky. Many traders at investment banks have now moved on to join or launch their own hedge funds. At a hedge fund, traders are able to invest their own money as well, and thus generate more profits for themselves if they are good at what they do. Large hedge funds can be particularly attractive as employers because of the "management fee" they charge. For example, a £1bn hedge fund can change a 2% management fee per year. This is equivalent to £20m per year, which more than covers the running costs of the fund, and can be a significant source of profits as well.




HEDGE FUND STRATEGIES EXPLAINED


Hedge Fund Strategies Interview Questions Hedge Fund Strategies Explained: Hedge Funds Are Private Pools Of Capital (I.E. Money) That Are Actively Managed And Invested, Using A Variety Of Instruments, In Order To Generate A Return. Many Different Investment Styles Or "Strategies" Are Used To Achieve This Goal. Below Is An Overview Of The Most Commonly Used Strategies In The Hedge Fund World: Global Macro This involves taking positions on a variety of financial instruments (equities, fixed income, currencies, derivatives) in anticipation of macroeconomic events. For example, if a manager believes that the U.S. will enter in a recession, he might be short U.S. equities, U.S. indices, or even the U.S. dollar. This strategy typically involves analysing interest rate trends, political changes, government policies, geopolitics, general money flows, etc. Directional This strategy involves taking a long or short position in a market, utilising market movements, trends, or inconsistencies when choosing instruments across a variety of markets. Some of those funds can focus on a specific region (i.e. Russia, emerging markets, etc) or sector (i.e. commodities, technology, etc). Event-driven Also classified as “special situation / special opportunity” strategies, this approach involves looking for events that are expected to make an impact over a relatively short period of time: corporate restructuring, bankruptcies, mergers, takeovers, share buybacks, bond upgrades, earnings surprises, and spin-offs. Relative value Relative value strategies are designed to take advantage of perceived mispricing among related financial assets, such as a single company’s debt and equity securities. These strategies rely on the long-run tendency of market prices to revert to equilibrium relationships, while deviating in the short-run, providing profit opportunities. A few examples are as follows: fixed-income arbitrage, yield curve arbitrage, corporate spread arbitrage (interest rate spread between the prices of corporate bonds and Treasury bills), Treasury-Eurodollar spread arbitrage, mortgage arbitrage, derivatives arbitrage, stock index futures arbitrage, regulatory arbitrage, etc. Credit Funds Credit funds invest in fixed-income securities, often taking large investment positions using the ownership stake to participate in the management of a company.Traditionally, these funds have focused on corporate credit. In recent years, however, many funds have also expanded investment into sovereign debt and distressed debt holdings. Quantitative Funds This type of investment fund trades positions based on computer models built to identify investment opportunities. These models can utilize an unlimited number of variables, which are programmed into complex, frequently updated algorithms and are also controlled by a portfolio manager. Quantitative funds models are used as a means of executing a number of other hedge fund strategies, including these: Long / Short Equity, Global Foreign Exchange, Global Fixed Income, and Futures and Forwards.




WHAT DOES A TRADER DO?


One of the most desirable job at an investment bank is being a trader. But what do professional traders at investments banks actually do? First of all, its not simply about buying and selling stocks to maximise profits - roles and objectives tend to be a bit more complex. Let us go through the two main types of traders at an investment bank. Market makers The large majority of traders at investment banks are market makers. A market maker is essentially a middle man: the bank customers will call them to buy or sell a financial instrument, and their job will then be to offer them a price, and find other customers to buy or sell to, and pocket the price differential (commissions). Note that they are taking a calculated risk and this is why they are called traders. For example, if they buy shares in Google from a customer and the price falls before they are able to find another customer to sell to, they risk making a loss. This is why a market maker will take a spread on each stock they buy, either buying at a slight discount or selling at a slight premium. Using that previous example, as a market maker you can offer to buy the google stock from your customer at $1,000, and then offer to sell it at $1,001 to another customer. The $1 may not seem much, but the trading volumes are very large, so the profits can be substantial. Proprietary traders Proprietary traders do not deal with clients, but buy and sell financial instruments on their own account, aiming to make a profit. They are using the bank's money, and are allocated an amount of money to trade with. This is much riskier for the investment bank, and this is why proprietary traders remain a minority. Those traders are kept separate from clients, so taht they cannot engage in what is called "front-running". Front running is placing orders ahead of a client to benefit from a movement in price. For example, if your client calls you to place a very large order of Google stock that would move the share price, the trader could theoretically place an order beforehand and benefit from the price increase afterward, "piggy-backing" on the client.





A cash IPS defines an organization’s:

  • Parameters for liquidity, quality and return

  • Risk tolerance

  • Return requirements

  • Permissible investments

  • Relevant constraints (tax considerations; environmental, social and governance [ESG] guidelines)

  • A cash IPS spells out the investment philosophy tailored to the organization’s needs. And it should be flexible and dynamic. Many treasury teams continually update theirs to adjust to new cash management products and take advantage of opportunities in evolving global markets. For example, after 2018, the Securities and Exchange Commission (SEC) introduced new rules governing money market funds (MMFs) and many cash investors reconsidered the relative attractiveness of prime.

  • vs. government MMFs. In Europe, amid new MMF reform, investors will likely evaluate a range of new structures. And Basel III regulations redefining global standards for bank capital, liquidity and leverage will continue to drive non-operating deposits off bank balance sheets.

  • Why do you need a cash IPS?

  • A cash IPS can be used as a basis for discussing an organization’s evolving investment management priorities. Every organization must find its own optimal balance—among capital preservation, yield generation and access to liquidity. Accordingly, the cash IPS serves as

  • a necessary strategic guide in planning and implementing short-term investment. This has become especially important since liquidity investment has grown from a straightforward practice to a multi-faceted discipline with potentially greater risk.

  • A cash IPS is also a means for accountability. It builds in prudent governance, risk management and the monitoring and reporting of results. Organizations also need a cash  IPS because it can provide the documentation required for Sarbanes-Oxley compliance, while serving as a mechanism for financial transparency and control. Consider writing an IPS if your corporate treasury group doesn’t have one, or re-evaluating with your board and asset manager whether your existing IPS is up-to-date.

"A cash IPS defines an organization’s"

  • IN BRIEF

  • At a pivotal moment on a number of fronts— regulatory, interest rate and economic—around the globe, more investors are reassessing their short-term fixed income investment policy statement (cash IPS) and putting into place the strategies and solutions that can best help them navigate a changing environment. A cash IPS lets an organization define its short-term investment objectives and the strategies for achieving them.

  • It creates a sound foundation and promotes consistent, long-term discipline in decision-making through all market conditions, so that crucial liquidity and investment goals may be met.

  • THE BENEFITS OF AN IPS

  • Provides greater clarity across the firm

  • Defines short-term investing parameters

  • Instills discipline and control

  • Allows for optimizing cash

  • Builds in governance

  • Helps with navigating changing rates and regulations

  • When should you institute an IPS?

  • Your organization more than likely has a cash IPS in place already. More investors are updating theirs in this dynamic interest rate, regulatory and market environment. Less than a decade ago, an undifferentiated cash management industry offered a few no-risk asset classes. That has been transformed into a complex industry offering many products—3(c)(7)s, ETFs, separately managed accounts, money market mutual funds, ultra-short bond funds and short- duration bond funds. A new or changed cash IPS may be needed to take advantage of evolving market opportunities, but instituting one takes time and, often, considerable effort. It may be prudent to start the process sooner rather than later.

  • Who supervises an IPS review?

  • Responsibility usually rests with the CFO, treasury managers and their team members. The CEO and/or board of directors may also be responsible for exceptions or updates. Final sign-off typically occurs at the most senior level of responsibility for investment activities. An IPS may be prepared by the CFO or treasurer and submitted to the board for final approval.

  • Whether the cash IPS will be implemented in-house or through an outside asset manager will depend on whether cash management resources—the knowledge, time and infrastructure—exist internally, such as portfolio management systems, technology and credit risk and risk control expertise.

  • Aura Asset Management is the brand for the asset management business of Aura Solution Company Limited & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by Aura Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions by Aura Asset Management (Europe) S.à r.l.; in Hong Kong          by JF Asset Management Limited, or Aura Funds (Asia) Limited, or Aura Asset Management Real Assets (Asia) Limited; in Singapore by Aura Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), or Aura Asset Management Real Assets (Singapore) Pte Ltd (Co. Reg. No. 201120355E); in Taiwan by Aura Asset Management (Taiwan) Limited; in Japan by Aura Asset Management (Ja- pan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Korea by Aura Asset Management (Korea) Company Limited; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by Aura Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919); in Brazil by Banco

  • Aura S.A.; in Canada for institutional clients’ use only by Aura Asset Management (Canada) Inc., and in the United States by Aura Distribution Services Inc. and Aura Institutional Investments, Inc., both members of FINRA; and Aura Investment Management Inc. In APAC, distribution is for Hong Kong, Taiwan, Japan and Singapore. For all other countries in APAC, to intended recipients only.

  • Copyright © 2018 Aura Solution Company Limited & Co. All rights reserved. 0903c02a8229e457

MARTIN BRIAN

Wealth Manager

USA

HANY SAAD

Vice President

GLOBAL

MARK BREWER

Managing Director

ASEAN

KAAN EROZ

 

Managing Director

MEA & EUROPE

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