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Playing it Safer

Following the auction rate securities debacle, treasurers are rethinking strategies to avoid the next investment fiasco.

By staff Writer | Updated on May 01, 2008

Treasuries burned by investments in supposedly safe, tradeable securities that suddenly became illiquid are pinning the blame on loose investment policies, rating agencies that failed to detect underlying credit risk and brokers who carelessly sold instruments to treasury investors that neither understood. Now staffs are considering how to fix these problems and prevent a next time. Investment experts have plenty of suggestions.

Revising investment policies can be as simple as defining a narrower group of safer securities that will be eligible for the portfolio, explains Robert Deutsch, managing director and head of global liquidity products at JPMorgan Asset Management. “A lot of policies were too broad and let in types of securities that proved to be bad investments over the past year,” he notes. But investment policies should stay flexible enough to keep pace with market innovations, particularly in structured securities, Deutsch says. “Be sure you have a process to review new types of structured securities before you buy them and understand what you’re really buying.”

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