Short Term Investments
This is a corollary of Working Capital management, which deals with ensuring that funds are invested efficiently, in a diversified manner, securely and with availability when required.
Example 1
A Midlands client invested in the Money Markets through its bank an average sum of about £1.5 mm. While they thought that this was a correct approach, on closer investigation it turns out that the average rate paid was 1.01% below Base Rate. Our recommendations resulted in the end of this investment and the movement of the funds into a Base Rate available environment.
Example 2
The shape of the yield curve dictates the type of investment that is appropriate. When the yield curve slopes up, investments should be Libid-linked, while when flat or downward sloping, a Base Rate link is beneficial. Recently, when the yield curve was flat, we advised a client to reduce his use of a Fund Manager, because the Fund Manager could not use the yield curve for rate enhancement, while the client could do as well and avoid the Management Fee.
