Does your organization have access to funds that you are not sure what to do with? Perhaps you were given PPP (Paycheck Protection Program) loans or other funding from programs implemented during the pandemic and are looking for ways to use it meaningfully. The easiest solution is to let it sit in a bank and collect interest. Although that method is convenient, it provides minimal returns over an extended period of time. A productive option that you may want to consider is utilizing institutional investment management services from a wealth advisory firm.
Institutional investment management is a service in which organizations partner with wealth advisors to invest their extra funding to optimize returns. Whether you are seeking to set up a short, or long-term investment strategy, the advisory firm helps you align your investment decisions with your financial goals and communicates with you regularly regarding performance so that you can make adjustments along the way. If you are curious about whether institutional investment management is the right solution for your extra funds, here are some additional advantages to consider:
1. Institutional Scale: Organizations that offer institutional investment management often include exclusive access to insights, strategies, and solutions to ensure that your investment plan is as effective as possible.
2. Performance: Depending on your financial goals, advisors can help you aim for strong risk-adjusted returns but understand that the primary objective is capital preservation.
3. Client Focus: Managing institutional investments is complex, but if you partner with the right advisors, they can help you implement a customized investment approach that is tailored to your specific risk tolerance.
While the advantages of institutional investment management can help a business put its cash to work, it isn’t a fit for every organization. Here are some other factors and potential risks to consider when making a decision about your organization’s investments.
Market Risk. Market risk (also known as systematic risk) generally affects most or all securities in the marketplace, which means that this risk cannot be fully diversified away. Some common factors that broadly affect securities are changes in interest rates, inflation, currency exchange rates, and the political and economic environment. In the short term, security prices can fluctuate dramatically in response to these developments. Different companies and different asset classes (such as cash, bonds, and equities) can react differently to these developments.
Business (Non-systematic) Risk. Nonsystematic risk affects a narrow group of securities that are closely related in sector, business, or product. Nonsystematic risk is intensified when investing in only one company or being overly concentrated in one company. The performance of that company is not only affected by broad market risk, but also by managerial risk (such as poor strategy or management) and other company-specific factors that may cause the company to underperform while the industry or sector of that company actually outperforms. Investing in one sector reduces company-specific risk, but the nonsystematic risk remains in that social or political development can greatly impact the sector and not the broader market (such as a change to tobacco regulations).
Liquidity Risk. The chance that an investor will not be able to sell bonds at desired prices and that large purchases or sales of bond issues may cause substantial price swings.
Interest Rate Risk. Interest Rate increases (decreases) can cause the price of a debt security to decrease (increase). Longer-maturity bonds typically incur more extreme price changes based on changing interest rates than those bonds with short maturities.
At BerganKDV, our wealth advisory team offers institutional investment management as one of our many robust offerings. We perform diligent research and mindfully assess your risk to establish an investment plan that addresses your unique needs. Our team provides on-demand guidance, support, performance updates and withdrawal requests so that you can feel confident that your extra funds are being handled with care.
Interested in learning more about what our institutional investment management services can do for your organization’s excess funds? Let’s have a conversation!
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.
