Optimizing Cash for Low Interest Rates

Overview

Developed market interest rates are poised to remain at or below zero for many years to come. Forward rates signal that the four most important central banks will not adjust policy rates any time soon. This presents a challenge for cash managers who seek to earn a return or even preserve principle, while maintaining safety and liquidity. A State Street Global Advisors survey of institutional investors found that two-thirds intend to take a more proactive approach to managing cash in the months ahead. This means capitalizing on a broader array of investment vehicles and cash strategies that offer greater return potential, such as separately managed accounts, enhanced cash and ultra-short-term bond strategies.

Still, many investors are leaving their cash in neutral. Trillions of dollars are idling in accounts with low or negative returns. Some cash managers are unknowingly risking their cash in undiversified, uncollateralized accounts with uncertain returns. To put this cash to work, investors need a better understanding of their cash options.

Choosing Among Cash Investment Vehicles Identifying appropriate investment vehicles is critical to optimizing cash. This entails understanding the tradeoffs inherent in the various vehicles. For instance, what are the hidden costs and risks of stashing cash in bank deposits? When does it make sense to subscribe to a money market fund or separately managed account, versus investing directly in a maturity ladder of individual securities? How do the cost and risk of managing cash in-house compare to those of using an asset manager? We cover factors to consider when choosing which vehicles are appropriate for your company.

Understanding Cash Strategies When it comes to cash, many institutional investors first think of government funds. In fact, four key strategies exist, each calibrated to meet distinct goals. Knowing how these strategies differ can help you decide when to allocate to them, optimizing performance.

Digging Deeper: Levers of Cash Performance Portfolio managers pull various levers to affect the liquidity, safety and return profile of a strategy. The levers include asset type, credit quality, maturity and liquidity. For example, how do traditional versus alternative repurchase agreements affect safety and return? What is the impact of weighted average life and weighted average maturity? And what is the impact of liquidity thresholds? To provide a deeper understanding of cash strategies, we explain how these levers work.

Attribution: Understanding Return Potential An important part of a cash team’s job is to analyze the contribution of each asset to portfolio performance. This is known as attribution. As an example, if a certain asset category is dramatically increasing the weighted average maturity of a portfolio but only adding a couple basis points of return, that asset would be better replaced with another option. In this article, we explain how attribution works and provide examples, to give you a more thorough grasp of how we optimize cash.

What to Consider When Choosing Your Manager Selecting the right asset manager for your cash is as critical as it is for any asset class. Key criteria include the size of the sponsor, depth of experience, the breadth of strategies and the amount of cash under management. Investors should also consider the manager’s investment philosophy and commitment to credit analysis. Choosing cash strategies requires multiple inputs and considerable analysis. Regardless of your risk tolerance, or how significant or unpredictable your liquidity needs are, careful selection can lead you to the most appropriate investments.

Choosing Among Cash Investment Vehicles

Clients frequently consult us on important cash management decisions. In addition to balancing safety, liquidity, and yield, they ask, how should we invest? What investment vehicles are suited to our goals? Should we use bank deposits, rely on professional asset managers — either money market funds (MMFs) or separately managed accounts (SMAs) — or should we purchase securities ourselves?

As a hypothetical case, let’s assume you are a treasurer with $100 million to invest. The money is to be used for operating costs and strategic investments, so it must be held in cash or cash-like instruments. Key questions include:

• What management fees will we pay?
• What liquidity will we receive?
  
• What risks do we face?
  
• To what extent is cash investing a competency we should develop in-house?
  

Option 1: Bank Deposits

After initial research, bank deposits appear appealing. A regional bank is offering 75 basis points (bps) interest, charges no management fee, and promises immediate liquidity. Yet a few months after opening the account the rate has dropped to 0.00%. On further analysis you learn that banks (unlike MMFs) have no fiduciary obligation to optimize your returns and can adjust rates without notice.

Meanwhile, you also consider the risks. A bank deposit is essentially an unsecured loan, a bet on the creditworthiness and risk practices of a single bank. There is no diversification or collateral, and insurance is limited to $250,000. If the bank fails, your operating cash would be at risk and liquidity would be compromised. Bank failures do occur. There have been at least 370 in the US since January 2010.¹ You learn that you may eventually get a portion of your deposit back, but it can take years.²

In other words, you are providing the bank with an interest-free, unsecured and undiversified loan. In the event of default, this would be difficult to explain to the board. You conclude that bank deposits are useful as an immediate backstop for your operating accounts, but exposure should be minimized. Given the hidden costs and risks, you consider hiring a team to conduct credit analysis, but first you explore other options.

Option 2: Money Market Funds

You had initially declined to invest in a MMF because of a 12–15 bps management fee. But now you have a greater appreciation for what that fee buys. MMFs have portfolio managers and professional credit analysis teams. They are limited to holding no more than 5% of risk assets from any issuer, so they are diversified. Moreover, MMFs abide by SEC liquidity guidelines that have been strengthened since the financial crisis. These guidelines require portfolio managers to maintain at least 10% daily and 30% weekly maturing assets (or assets that qualify according to the SEC’s rule). With this liquidity, you can redeem any time (before the daily deadline) and you receive your cash. Although not guaranteed, there is generally no cost to this liquidity when invested in constant NAV products that use amortized cost accounting methods.

The bottom line: MMFs allow you to benefit from term asset returns while not being constrained by their liquidity. You get the yield on the portfolio without having to pay to sell an asset that matures in six months.

Option 3: Separately Managed Accounts

You also learn that SMAs offer advantages relevant to your cash needs. SMAs often charge lower management fees than MMFs, and you can customize the investment guidelines. You can put specific limits on asset types, issuers, durations, liquidity, and other parameters. There is one drawback: SMAs are less liquid. If you unexpectedly need cash, you may have to sell assets, which could generate either a loss if the market is down or a gain if it is up. Still, you decide to seek enhanced returns for the tranche of cash you are holding for future acquisitions, by bearing slightly more risk and duration.

Option 4: Investing in Securities

Another alternative would be to invest in individual securities. You consider creating a maturity ladder of investments, similar to a Government MMF, but there are tradeoffs to consider. As with an SMA, market moves would determine the cost of generating liquidity and you could generate realized gains or losses. Additionally, you have operational risk. If a member of your team is buying and selling treasuries, that process must be controlled. Moreover, what happens if that person is sick or leaves the firm? You must implement market and operational procedures and have backup and safety protocols. If you have credit exposure, who will monitor the credit worthiness? An asset manager has a dedicated credit team that monitors each name, formally reviews that name on a quarterly basis and determines if it qualifies as appropriate for investment.

In the end, you conclude that MMFs and SMAs make sense for your treasury department. Cash investing is critical, but developing the needed investment and credit-analysis expertise in-house would be inefficient, expensive, and potentially risky.

Understanding Cash Strategies

At its core, cash investing involves a subtle but important tradeoff among return, liquidity, and safety. Over a business cycle, investments featuring lower liquidity and safety are expected to produce higher returns, whereas those with greater liquidity and safety would yield lower returns.

Cash can be invested in a variety of strategies, depending on a company’s cash balance, goals and constraints. Safer, more liquid strategies are appropriate for near-term cash needs. Funds intended for longer-term purposes, such as future acquisitions or longer-term strategic reserves, can be invested to seek greater return. This can be accomplished using strategies featuring incrementally less liquidity and safety, provided that the investor would not need to liquidate this pool of cash at an inopportune time, such as during a near-term market disruption.

Generally speaking, there are four types of cash management strategy, each featuring parameters that impact safety, liquidity, and return. Below they are ranked from most to least conservative.

Government cash strategies Also known as sovereign strategies, these strategies own only sovereign debt, so they are a natural safe haven in times of stress. Because sovereign debt from major issuers is frequently and easily traded, sourcing liquidity from government cash strategies is easier than from other cash strategies, particularly during “risk off” market moves. Immediate liquidity and maximum safety make government cash strategies appropriate for daily operating cash.

Prime cash strategies These strategies provide an incremental yield advantage over government strategies by investing in short-term credit. These investments pose minimal credit risk and typically carry good market liquidity. Prime strategies can add incremental alpha by investing in short-term, floating-rate notes that mitigate the impact of rising interest rates, while increasing yield over fixed-rate investments of similar duration. Immediate liquidity and strong safety make prime cash strategies a good choice for organizations that seek additional yield on their operating cash.

Enhanced cash strategies Like prime strategies, these also invest in credit, but further out the maturity curve. During normal market conditions, enhanced cash strategies invest a portion of their assets in floating rate notes that mature in two to three years. They also allocate to other asset types for diversification. Asset-backed securities (ABS) provide AAA-rated credit quality while delivering similar yields to comparable unsecured credit. Because enhanced cash strategies tilt toward yield and take on slightly more market risk, they are better for reserve cash or strategic cash.

Ultra-short-term strategies These typically generate most of their alpha using lower-rated securities, and using investments with a longer duration. Ultra-short strategies also invest in ABS and non-agency mortgages to diversify and boost returns. The incrementally greater risk profile of these strategies makes them appropriate for longer term strategic cash.

Figure 1: Strategies for Investing Cash

Cash Flow Considerations

Cash flows in any business or asset allocation strategy will help determine the level of liquidity needed to achieve optimal outcomes. Understanding cash flows — whether they are seasonal or related to specific factors — allows for the appropriate allocation to support this need for liquidity. Below is an example of a cash flow cycle and how various strategies were called on to provide liquidity while others remained static so as to deliver on their investment objective.

Figure 2:  Cash Flow History

Investors can obtain exposure to these strategies through a variety of vehicles, including SMAs, ETFs, and funds that are either registered or unregistered.

Registered funds feature the added security of complying with SEC regulations for publicly available investments, while unregistered funds, available in certain circumstances to accredited investors, enjoy greater flexibility, providing the potential for improved performance.

Figure 3: Portfolio Guidelines and Constraints

Digging Deeper: Levers of Cash Performance

Cash portfolio managers can pull four levers to affect performance. Each cash strategy has its own constraints on the use of these levers. To provide a greater understanding of risk and opportunities inherent in cash investing, we will review the following levers:

• Asset type
• Credit quality
  
• Maturity
  
• Liquidity
  

Asset Type

Cash strategies invest in three main asset types: sovereign, credit, and secured debt.

Sovereign debt Sovereign debt includes direct, guaranteed obligations of a central government. This should be the highest quality and most secure debt in any country, because it is backed by the country’s tax receipts. Sovereign debt also includes most government agency debt, issued by highly regulated entities, such as the US Federal Home Loan Banking System.

Credit debt Credit debt is the direct debt issued by a bank or corporation in the form of certificates of deposit, commercial paper or medium-term notes. Credit debt is unsecured, meaning it is not backed by collateral, so it should offer greater return potential to compensate for the risk. Typically, prime cash and enhanced cash strategies purchase credit debt only from highly rated entities. Ultra-short-term strategies may buy from issuers with less robust credit, offering higher yield. The ability of the issuer to repay the debt determines the credit quality, so credit-rating expertise is critical for investing in credit debt, as discussed in more detail below.

Secured debt Secured debt is also known as structured debt or collateralized debt. For the purpose of this paper, this includes asset-backed securities and repurchase agreements.

• Repurchase agreements (repo) For our purposes, repos entail cash loaned by asset managers against collateral.³ Repos are frequently arranged by one of two custodial banks, or dealers, that provide clearing services to ensure efficient execution of the repo. Repo collateral can be either traditional or alternative.
  
  
• Traditional collateral repos These are collateralized with sovereign debt, so they are viewed as safe and liquid. Most traditional repos mature overnight, or within a week. Interest rates are similar to the federal funds effective rate. The interest rates on overnight traditional repos underly the Secured Overnight Funding Rate (SOFR), a reference rate established as an alternative to LIBOR.
  
  
• Alternative collateral repos These can be collateralized with assets other than sovereign debt, such as corporate and bank debt, asset-backed securities, private-label (nongovernmental) mortgage-backed securities, ETFs and equity securities. While alternative repos (also known as alternative collateral repos) carry more risk due to the nature of the collateral, investors are protected by both the creditworthiness of the counterparty and by the additional haircut on the collateral, which always exceeds the amount of the loan.

Prior to 2008 alternative repos were mostly transacted overnight or with one-day maturities, yet post-financial crisis regulations require longer maturities for these liabilities. Dealers generally seek longer-term funding, preferably longer than 90 days. Since the new regulations took effect, demand has boosted alternative-collateral-repo returns to attractive levels.

Figure 4: Relative Value of Investing in Term Repo

Liquidity is an important constraint for alternative repos and explains the higher returns. Because a repo is a contract between two parties, not a security, it is not fungible. It cannot be traded to anyone but the contracted entity. By SEC definition,4 this makes any repo investment that matures longer than five business days illiquid regardless of the collateral. SEC regulated cash strategies have specific limits on illiquid investments. Generally, only strategies with consistent and predictable cash flows should enter into illiquid investments. To boost returns, alternative repo may be held by strategies with predictable and known cash flows, such as enhanced cash and ultra-short-term strategies.

Asset-backed securities (ABS):

• Credit — ABS The types we invest in tend to be plain vanilla structures. The most common are securitized credit card receivables, auto loans, leases, and dealer floor plans (loans that finance auto dealers’ inventory). Other examples include equipment receivables or insurance receivables. Typically, we purchase debt that is at the top of the capital structure. This means we are buying the most senior part of the deal, which is AAA-rated and has the most credit enhancement protection. These deals can be fixed or floating rate.
  
  
• Issuance — ABS These securities have changed significantly since the 2008–2009 global financial crisis (GFC). Issuance has decreased, and the market has returned to the more straightforward programs of the late 1980s, when ABS were introduced to move certain receivables off bank balance sheets and create a more efficient funding market.
  
  For cash management, ABS enable portfolio diversification. They can also improve credit quality, when cash managers purchase AAA-rated ABS with short average lives, meaning expected maturities of one to three years. The grid below highlights the current relative value of ABS versus unsecured credit.
  

Figure 5: Relative Value of Investing in ABS

ABS also present drawbacks. Deal size may be small, leading to lower liquidity. Moreover, there is a smaller buyer base for ABS, as their complexity requires significant resources for analysis. This could mean wider bid-offer spreads and increased transaction costs when trading the debt.

Credit Quality (Ratings)

As in other asset classes, in cash riskier assets should offer higher return potential over time on average. Of course, given the importance of near-term liquidity and principal preservation, cash strategies handle risk carefully. Government strategies typically carry the least risk, investing in risk-free or near-risk-free sovereign debt.

Prime and enhanced cash strategies tolerate slightly higher but still minimal risk. For the most part, the issuers of debt held by these strategies carry NRSRO⁵ ratings of single A or better. For ultra-short-term strategies, the ratings can migrate to BBB. Typically, none of the strategies own high-yield debt, although exceptions exist; our Global Credit Research Team determines the allowable investment universe.

Note that we consider NRSRO ratings as a factor, but our credit team has relied on its proprietary analysis for years. We use a variety of sources to generate our view and create formal credit reports after each company’s quarterly earnings release. Specific limits, including nominal exposure and maturity, are placed on each credit commensurate with its credit worthiness.

At times, some lower-rated credit in very short-term maturities — for example, one to two months — can provide a yield advantage with a reasonable risk return profile. Tier 2 commercial paper (A2/P2/F2) can yield 5–20 bps over tier 1 commercial paper (A1/P1/F1) of similar maturities. This yield advantage comes with very low levels of risk due to very short-term maturities. If a lower-rated company is able to issue debt into the capital markets, it would be exhibiting a level of solvency not associated with default. If the company became constrained it would most likely be able to tap into bank lines to repay its commercial paper. According to a 45-year Moody’s study of commercial paper defaults, there was only a 1 bps increased default probability for a tier 2 commercial paper issuer versus a tier 1.⁶

Maturity Limits

Portfolio or strategy maturity (duration) limits are perhaps the most defining part of short- term strategies. Beyond what the credit research team defines as individual security credit limits, each strategy has maturity limits, determining the amount of time the strategy can be exposed to assets or interest rates. For government and prime strategies, they are specific and prescriptive. For enhanced cash and ultra-short-term strategies they can be more flexible.

Maturity limits are important because they impact risk, liquidity and return. For risk, the longer a strategy holds its investments, the more opportunity there is for conditions to change affecting performance. All other factors being equal, a diverse portfolio of credit maturing in 30 days on average bears less risk than one maturing in 90 days. The shorter portfolio would also be more liquid, given that more of the investments would be maturing soon, reducing the potential need to sell an asset and face market risk. As for return, a portfolio with a longer duration may offer a higher yield, reflecting greater risk. On the other hand, longer duration fixed-rate notes would pose interest rate risk: if interest rates rise, the value of the notes would decline.

Maturity metrics include weighted average maturity, weighted average life and legal final maturity.

Weighted average maturity (WAM) Also known as interest rate duration, WAM is an indicator of a strategy’s sensitivity to interest rate changes. WAM measures the amount of time, measured in days, to the next interest-rate reset, weighted by the size of each asset and averaged. (For fixed-rate notes, the final maturity date is used.) A longer WAM signifies greater interest-rate risk.

Weighted average life (WAL) This measures the strategy’s maturity, in days. In the case of floating-rate debt, WAL uses the final maturity date and not the coupon reset date. WAL is also known as credit duration as it measures when the credit matures out of the portfolio. While extending WAL can help boost returns, WAL is an indicator of credit risk, given that the longer a strategy holds its investments the more chance there is for a credit event.

Legal final maturity (LFM) This measures when a strategy’s bonds must mature to avoid defaulting. Usually this would be the maturity date of the debt. For ABS and other structured debt, the LFM and expected maturity data may differ. Most ABS deals measure their maturity using expected maturity, when the deal will most likely pay off or mature. But this measure varies depending on the speed of the underlying payments. For example, borrowers may pay their auto loans more quickly (or slowly) than expected, impacting the expected maturity of an auto loan ABS. For ABS, the LFM is typically much longer than the expected maturity.

Enhanced cash and ultra-short-term strategies can use the same WAM and WAL measures but don’t necessarily have hard legal final maturity restrictions. This enables portfolio managers to invest in structured debt with expected maturities, capitalizing on a return opportunity.

Liquidity

Liquidity is a final lever impacting performance — as well as a measure of performance itself, insofar as providing ample liquidity is a critical goal of many cash strategies, such as prime and government funds. Given how important it is for cash to be available in an orderly and predictable manner, minimum liquidity levels are often defined for cash strategies, either via regulatory requirements or in the strategy’s terms. Regulated money market funds have specific requirements that have become more restrictive since the financial crisis, with measures in place to protect investors and the fund in the event that liquidity drops. These funds must publish liquidity levels on their websites daily, providing investors with the ability to monitor liquidity performance over time.

The regulatory requirements on money market funds dictate that at least a certain proportion of the portfolio must mature in a specific number of days. The most common metrics are daily (available the next business day) and weekly (available within five business days) liquidity percentages. Depending on the jurisdiction, daily and weekly liquidity requirements may be met by holding certain asset types with longer maturities, such as eligible Treasury debt in the US.

Liquidity poses a tradeoff, however. As a lever of safety, liquidity tends to be correlated with lower yield. As such, enhanced cash and ultra-short-term strategies, which tilt toward return, tend to have greater flexibility. This may come in the form of expected liquidity levels rather than firm requirements, enabling liquidity to rise and fall according to market conditions and cash flows. This enables portfolio managers to seek greater returns, and may be appropriate for a company’s reserve or investment cash.

Liquidity is largely a factor of the other levers discussed in this paper. Assets with large issuances, strong credit quality and shorter maturities — for instance, Treasury bills and other sovereign debt maturing soon — tend to be more liquid. In contrast, as explained above, ABS are less liquid since the issuance may be small and since analyzing them requires specialized expertise, reducing the pool of potential investors. Alternative repos are illiquid given that they cannot be traded.

All other factors being equal, a high level of liquidity reduces risk. As such, strategies with the highest degree of liquidity tend to deliver the most modest returns. These strategies are best suited for daily operating cash.

Attribution: Understanding Return Potential

Attribution is the process of understanding how the assets in a fixed income portfolio are impacting performance (specifically safety, liquidity, and yield). In this section, we illustrate how, with the right asset type, portfolio managers can capitalize on opportunities further out the yield curve.

First, as context, to choose the right cash strategy it is important to understand historical returns and the potential for future returns. This helps frame the risk-return profile. For this analysis we can look at both historical and expected returns.

Historical Returns

The yield differential between government and prime money market funds has varied significantly over the past 20 years. In general, in the early 2010s it averaged 10 to 12 basis points (bps), before widening to over 30 bps as the US money market fund (MMF) reform deadline approached in 2016. After the reforms took effect, spreads dropped to 20–25 bps before slipping below 20 bps in 2019.

When credit conditions are stable and the economy is growing, the yield spread has compressed as tight as 3–7 bps, whereas during economic shocks or strained credit conditions it has widened significantly. It approached 100 bps during the GFC, and reached 77 bps during the liquidity shock of 2020, before compressing to about 7 bps in December 2020.

Potential Future Returns: Capitalizing on the Yield Curve

This context sheds light not only on current money market yields, but on opportunities further out the yield curve. As the money market curve steepens (i.e., 1-year rates move higher versus 1-month rates) yields just beyond one year may also rise, providing opportunities for enhanced cash and ultra-short strategies.

In late 2020, there was limited opportunity out the curve. In the example below, 30% of the portfolio is in floating-rate notes. (Other allocations are 40% in overnight repo and 30% in 1-month and 2-month commercial paper.) In Sample 1, the floating-rate notes have 1-year
maturities. We change the maturities to two years in Sample 2, and three years in Sample 3. That increases the weighted average life (WAL) by 100+ days for each additional year, and yet the portfolio only gains 2 bps of yield per year.

Figure 6: Strategies with 1-Year, 2-Year and 3 -Year Floating Rate Notes

Adding an asset backed securities (ABS) allocation to the portfolio produces similar results, because credit spreads are compressed and the yield curve is very flat. Issuers are preferring longer fixed-rate debt to lock in the low rates.

In contrast, the portfolio below shows that term alternative collateral repo makes sense in the current rate environment. As noted previously, regulations require term funding for certain harder-to-fund collateral types (corporate debt and equity securities). As such, dealers are willing to “pay up” to secure this funding. When substituted into the portfolio from the previous example (i.e., 30% alternative repo with a duration of 1-, 2- or 3-years, 40% in overnight repo and 30% in 1-month and 2-month commercial paper) the results are favorable. Portfolio WAL and weighted average maturity (WAM) are significantly reduced, and the yield rises by 4–12 bps. Yet there is a tradeoff: alternative repo cannot be sold and is categorized as an illiquid investment.

Figure 7: Strategies with Term Repo

Guidelines and strategy constraints dictate the additional yield that can be achieved in these longer-maturity strategies. An estimated 10–50 additional bps could be achieved in various market and yield curve environments.

Stress Tests for Prime and Enhanced Cash Strategies

Mark-to-market pricing of certain strategies will also impact decision making. Investors need to understand the downside risk to their cash allocation. Government MMF strategies show strong performance in weak market environments. Prime MMFs are more variable. The chart below shows the net asset value (NAV) movements of 10 institutional prime MMFs in February to May of 2020. You can see the lowest NAVs during the March volatility were 0.9982. (Note that low NAVs do not necessarily mean the largest price drop. Some NAVs started well above 1.0000 and thus dropped by a larger percentage even though they were not the lowest.)

Figure 8: Institutional Prime Net Asset Value

Variation in the WAL also impacts the change in value. Below are three examples using a prime strategy allocation with varying WAL. For the strategy with 120-day WAL, each 30 bps of credit spread widening equate to approximately 10 bps drop in NAV.

Figure 9: Credit Spread Shock

Through March and April 2020, we looked at eight enhanced cash strategies with WALs that ranged from 100 days to 180 days and averaged 140 days. Each strategy had different cash flows and different asset composition. The NAV of the funds, on average, dropped by 50 bps (1.0000 to 0.9950). Some dropped by as little as 40 bps, and one by as much as 100 bps. All of the NAVs had recovered back to par by mid-summer.

Ultra-short-term strategies, as noted earlier, can take more risk in both maturity and credit. These strategies do not behave similarly to cash strategies. Their returns can be significantly higher. Choosing an ultra-short strategy over a prime strategy can earn upward of 50–75 bps over longer periods of time, but their NAVs can drop more in times of stress. We observed some ultra-short strategies’ NAVs dropping by 700 bps ($100 to $93) during March.

What to Consider When Choosing Your Manager

State Street Global Advisors, the world’s third largest asset manager, is a leader in cash and short-term liquidity. By the numbers, we manage $358 billion, in 14 cash strategies with 6 fund structures. We have been handling cash mandates for global clients for more than 40 years, and act as a fiduciary for one of the world’s largest custodians. The 22 professionals on our cash team have over 20 years’ experience on average.

Figure 10: Cash AUM

Our investment approach balances principal preservation, competitive return and same-day access to cash, to meet our clients’ needs under a variety of market conditions As stewards of liquidity, our culture is inherently conservative. Rather than
chasing yield, we pursue a relative value approach to find assets that offer a higher potential for return, while addressing the need for safety and liquidity.

Credit research is essential to our process Our team-based structure leverages sector specialization. All of our credit analysts have 15 to 30 years’ experience, through multiple market cycles. We monitor over 250 credits and have direct contact with management teams at top exposures.

With multiple layers of risk management, our process aims to identify credit profile degradation in real-time, to limit or eliminate exposure to weakening credits. Detailed quantitative and qualitative analyses examine each company’s strategy, capital structure, earnings capacity and management capabilities, among other factors. We also evaluate ratings from nationally recognized statistical rating organizations (NRSROs), but they do not drive our analysis.

To learn more, visit www.ssga.com/cash.