Liquidity Portfolio
F. Liquidity Portfolio
The liquidity portfolio helps ensure the uninterrupted availability of funds to meet loan disbursements, debt servicing, and other cash requirements; provides a liquidity buffer in the event of financial stress; and contributes to ADB’s earning base. ADB’s Investment Authority governs ADB’s investments in liquid assets. The primary objective is to maintain the security and liquidity of the funds invested. Subject to these two parameters, ADB seeks to maximize the total return on its investments. ADB does not switch currencies to maximize returns on investments, and investments are generally made in the same currencies in which they are received. At the end of 2017, ADB held liquid investments in 15 currencies.
Liquid investments are held in government or government-related debt instruments, time deposits, and other unconditional obligations of banks and financial institutions. To a limited extent, they are also held in corporate bonds that are rated at least A–. These investments are held in five portfolios—core liquidity, operational cash, cash cushion, discretionary liquidity, and ad hoc—all of which have different risk profiles and performance benchmarks. The year-end balance of the portfolios in 2017 and 2016 is presented in Table 17. The amortized cost and fair value returns of the portfolios are presented in Table 18.
Table 17: Year-End Balance of Investment Portfolio a ($ million)
Core Liquidity Portfolio
Cash Cushion Portfolio
Operational Cash Portfolio
Discretionary Liquidity Portfolio
Ad hoc Portfolio
a Including securities purchased under resale arrangements, securities transferred under repurchase agreements, and investment related swaps. The composition of
the liquidity portfolio may shift from year to year as part of ongoing
liquidity management.
Fair Value Item
Amortized Cost
Core Liquidity Portfolio 1.6 1.9 1.3 1.0 Cash Cushion Portfolio
1.4 0.9 1.4 0.9 Operational Cash Portfolio – USD
0.6 0.7 0.6 0.7 Discretionary Liquidity Portfolio a 0.4 0.5 0.4 0.5
Ad hoc Portfolio 2.2 3.4 2.2 5.0 Note: The amortized returns are based on income from investments and realized gains and losses reported in the Statement of Income and Expenses. The fair value return incorporate unrealized gains and losses that are reported as part of other comprehensive income loss and movements are dependent on prevailing market environment.
a Spread over funding cost.
The core liquidity portfolio (CLP) is invested to ensure that the primary objective of a liquidity buffer is met. Cash inflows and outflows are minimized to maximize the total return relative to a defined level of risk. The portfolio has been funded by equity, and the average duration of the major currencies in the portfolio was about 3.0 years (3.1 years – 2016) as of 31 December 2017.
The cash cushion portfolio holds the proceeds of ADB’s borrowing transactions pending disbursement. It is invested in short-term instruments and aims to maximize the spread earned between the borrowing cost and the investment income.
The operational cash portfolio, designed to meet net cash requirements over a 1-month horizon, is funded by equity and invested in short-term highly liquid money market instruments.
The discretionary liquidity portfolio is used to support medium-term funding needs and is funded by debt to provide flexibility in executing the funding program over the medium-term to opportunistically permit borrowing ahead of cash-flow needs, and to bolster ADB access to short- term funding through continuous presence in the market.