@Aviva Investors.
The topic of liquidity has come into greater focus in the wake of recent market events and regulatory changes. Regulators around the world are asking investors to hold more liquidity or placing greater emphasis on existing rules. Recent liquidity risk events have pushed many investors towards higher liquidity allocations.
In our view the amount of liquidity any investor should hold represents a delicate balancing act between potential liquidity needs and wider allocation choices. No easy task, but one that can be approached through a combination of scenario analysis and good liquidity-risk governance. Liquidity needs to be valued appropriately in a broader strategic asset allocation.
For many investors, a liquidity pool may just mean cash deposits with banks and/or government bonds; while such an allocation may be intuitive, it is not necessarily optimal. Investors need to consider whether the liquid assets they hold are the right assets for their needs.
In this article, we provide a case study of how one of our clients worked with us to build a bespoke liquidity portfolio. The investor in question, a multi-line insurer, had complex liquidity needs and a sophisticated understanding of liquidity risk and liquidity assets. We worked with the client to design and build an optimised portfolio factoring in liquidity, capital-stability, yield and capital-efficiency considerations.
Find out more in “Liquidity optimisation for insurers.”
