As an insurance company, Income receives premiums in the form of cash and invests them in private and public assets, as stipulated in its strategic asset allocation. “Given our size and stature, we have an enormous responsibility to efficiently generate long-term, sustainable returns to meet policyholders’ and shareholders’ reasonable expectations,” said Philip Pang, Head of Investment at Income.
Income is committed to meeting those expectations by diversifying its sources of return, actively managing its assets and harvesting the illiquidity premium embedded in its long duration assets and illiquid holdings. The insurer recognised that efficiency and optimal returns on the liquid, short end of the spectrum were critical as well.
Cash management was traditionally the responsibility of Income’s internal portfolio management team. In early 2018, the firm appointed a new investment manager to manage a significant portfolio of its assets. To ensure continuity in managing the assets by both sides, relevant Income portfolio management personnel, including cash managers, joined the external investment management company. Income also appointed a new custodian in mid-2018.
As part of the change, a wider reassessment of its portfolio and cash management processes was performed, where Income executives made several critical changes. “As a result of appointing a new investment manager, we felt that a holistic look at our cash management process was warranted so as to yield both operational efficiencies and improved returns,” said Pang.
When it comes to enhancing the efficiency of cash management, Income worked with the custodian and potential cash solutions providers in the market. In this regard, the firm reviewed portfolio managers, compared track records, credit and investment processes, commitment, client service and more. The process led to what Income regards as a viable solution: an auto-sweep into JPMorgan SGD and USD Liquidity Strategies via the custodian. This highly liquid overnight cash parking solution offered diversification into high-grade counterparties as well as a potential yield pickup over cash.
Throughout the adoption process, the J.P. Morgan Global Liquidity team worked closely with Income’s investment team to ensure a thorough due diligence process was completed and that they fully understood and were comfortable with the investment strategy and risk management process.
“Our due diligence efforts paid off: the auto-sweep facility, with the JPMorgan Liquidity Strategies at its core, is a solution that checks the boxes for us,” said Koon Wei Goh, Manager, Asset Allocation at NTUC Income.
Enhanced diversification, credit quality evaluation and risk control.
A potential yield pickup over cash.
Timely investment holding reports to meet regulatory requirements.
“In our view, all that adds up to less risk, greater reward and better value for our policyholders and shareholders,” said Goh.