MANAGING LIQUID FUNDS

IN UNCERTAIN TIMES
Held on
January 11-13, 2012
CLIMBS Training Institute
Cagayan de Oro

Consultants/Facilitators:
Prof. Vicente R. Valdellon, Jr.
Jowell L. Tan

A joint undertaking of:

and

Coop Life Insurance and Mutual

Benefit Services

VRV Management
and Property Consultancy, Inc.

MODULES
MODULE #1
Liquid Funds

MODULE #2
Anticipate
MODULE #3
Uncertainty

MODULE #4
Manage

MODULE #5
Issues and Concerns
of the Future

MODULE #1
Liquid Funds

FICCO
2010 BALANCE SHEET
(in P Millions)

ASSETS
Current Assets
Cash and Cash Equivalents
Loans Receivable, net
Other Receivables
Inventories
Funds Held by Trustees/Fund Managers
Prepayments and Other Current Assets
Total Current Assets
Non-Current Assets
Investments in Available-for-Sale Securities
Held-to-Maturity Investments
Investments in Non-Marketable Securities
Loans Receivable, net
Property and Equipment, net
Real and Other Properties Acquired, net
Intangible Assets, net
Other Non-Current Assets
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES AND MEMBERS EQUITY
Current Liabilities
Deposit Liabilities
Accounts Payable and Accrued Expenses
Bills Payable
Interest on Share Capital and Patronage Refund Payable
Unearned Income
Total Current Liabilities
Non-Current Liabilities
Trust Fund MAF
Other Non-Current Liabilities
Retirement Liability
Total Non-Current Liabilities

686.9
1,091.0
22.8
25.3
115.6
10.7
1,952.3
12.5
6.1
33.2
2,383.6
169.8
21.5
2.8
6.3
2,635.8
4,588.1

2,095.9
108.4
23.1
195.5
0.1
2,423.0
246.7
16.3
9.3
272.3

Total Liabilities

2,695.3

Members Equity

1,892.8

TOTAL LIABILITIES AND MEMBERS EQUITY

4,588.1

SAN DIONISIO CREDIT COOPERATIVE

2009 Assets
(in P Millions)

Current Assets
Cash on Hand & In Banks
Loans Receivable, net
Other Receivables
Unused Office Supplies
Prepaid Expenses
Short-Term Investments
Total Current Assets
Non-Current Assets
Investments
Long-Term Investments Cooperatives
Long-Term Investments Others
Total Long-Term Investments
Property and Equipment, net
Other Assets
Total Non-Current Assets
TOTAL ASSETS

92.5
266.2
12.4
0.4
0.9
8.3
380.7

11.9
23.3
35.2
19.6
107.9
162.7
543.4

2009 Profit-and-Loss Statement

(in P Millions)
REVENUES
Interest Income from Loans
Service Fees
Income/Interest from Investment
Rental Income
Gross Income from Sales
Fines, Penalties, Surcharges
Miscellaneous Income
Membership Fees
Total Revenues
EXPENSES
Financing Costs (Deposits & Borrowings)
Administrative Costs
Total Expenses
Gross Income
Add: Project Subsidy, Gain on Sale
of Acquired Assets, Adjustments
Net Surplus

40.3
7.4
4.0
3.4
0.9
0.5
0.5
0.3
57.3
10.1
36.9
47.0
10.3
0.8
11.1

LIQUID-FUND POOL
Cash
Inflows

Cash
Outflows

Cash inflows and outflows

are constantly happening.
The pool naturally grows.

UNMANAGED
Cash
Inflows

Cash
Outflows

MANAGED

Manage the size of the pool.

Manage within the pool.

FIRST ISABELA COOP BANK

TREASURY YIELDS
(in P Mns)

Cash
+ Bank Deposits
+ Investments

Interest
Earned

Yield

2002

82.72

2.83

3.42%

2003

93.21

2.89

3.10%

2004

97.76

4.50

4.60%

2005

144.19

4.22

2.93%

2006

177.74

5.66

3.18%

2007

220.65

5.47

2.48%

2008

362.33

12.27

3.39%

(Oct)

(annualized)

EXCESS LIQUID FUNDS

Cash
Inflows

Cash
Outflows

Liquid funds
beyond one months
cash needs:
what your coop
does not need
for this months
day-to-day operations.

CLIMBS
LIQUID FUNDS PORTFOLIO
(29 February 2004)

Investments Yields
Operational Accounts

P 3.85 Mn

1.000%

2.75

3.410%

4.21

5.867%

12.91

9.370%

8.84

9.771%

21.56

7.755%

(1-2 months staffing and utilities)

Legal Policy Reserves

(set by Insurance Commission)

Contingency Reserves
(probable claims of 6-9 months)

Retirement Funds of Certain Coops

Investments into Cooperatives
(half sought for, half accommodations)

Funds Available for Capexes

or Redeployable to Other Blocks
Total Portfolio
91-Day T-Bill Rate

P 54.12 Mn 7.621%
ave
6.435%

MODULE #2
Anticipate

WHY WE NEED
TO ANTICIPATE
(some examples)

big loans will be made

in the following months
new types of loans for new markets
requiring larger amounts
will be launched
new branches/offices will be put up in the future
(both in new territories and
where we are currently present)
projects we want to get into in the next 5 years
(and members have clamored for these)
but our coop lacks funding
interest on share capital and patronage refunds
to be paid out next year
maintenance and repairs
already foreseen

HOW OTHERS
ANTICIPATE PURPOSIVELY
SIDC (2004)
(for 2005)
Funds Needed for Operations
of the 18 Business Lines
Capital Expenditures
Foreseen for Business Lines
Transferrable Funds
into Operations and/or Capital Expenditures

FICOBank (2009)
Operating Account (daily banking operations)
BSP-Required Reserves
Contingency Provisions (big withdrawals/loans)
Capital Expenditures for Branching & IT

Oro Integrated Coop (2011)

Operationals
Contingencies
Capexes for Growth
Dividends
Retirement of Employees
Investments into Federations
Redeployable Funds into any of the above

COVEYS QUADRANTS
Quadrant 1
Urgent
and
Important

Quadrant 2
Important
but
Not Yet
Urgent

Quadrant 3

Quadrant 4

Urgent
but
Not Important

Not Urgent
and
Not Important

ORGANIZE
and SAVE UP
for
FUTURE USE
identified

How much?
For what?
By when?

MANAGEMENT

Anticipate!
Planning

Preparasi

Organizing

Organasi

Controlling

Penetrasi

Directing

The
end-in-mind
comes first.
The
technical
ways/means
only 2nd.

MODULE #3
Uncertainty

THE MEANING
OF UNCERTAINTY
G-M-O Matrix
(a synthesis)
Goals

Moves

Outcomes

Setting

clear

clear

clear

certainty

clear

clear

unclear

risk

clear

unclear

unclear

uncertainty

unclear

unclear

unclear

ambiguity

HAPPENINGS
OVERSEAS
the relevant
and more notable

the USA depression

the Euro mess

COUNTRYSIDE
ONGOINGS
universal and commercial banks
into the countryside
lending, microfinancing, buying RBs
coop growth all around
(many will become billionaires)
more affordability, bankability, more knowhow
multiple branching
inter-coop competition, membership
overlapping
foreign investors
buying into rural banks (RBs)
expanding RBs microfinance portfolio

FEARLESS FORECASTS
Impact on Coops
fixed-income rates will stay low
not just this year
but in the next 3 years
continuous downward pressures
on lending rates
on savings and time deposit rates

bonds outlook
bright in terms of relative safety
lousy in terms of earnings yields
equities outlook
promising for those Philippine-market-oriented
(esp energy, property, telecoms)
problematic for those heavily export-oriented

FEARLESS
PRESCRIPTIONS
How Coops Should Move
contingency buffers
and liquid funds policies
will be needed
but dont keep
too many defensive funds
earning very low yields
liquid funds portfolio
will have to go aggressive
without becoming reckless
coops now obliged
to plan out, and engage in
high-yielding project investments
for better member care
be very clear
on the whats (purposes) of liquid funds
to better determine the hows
of managing liquid funds

RATE INDICATIONS
(6th January 2012)

Savings Deposit

Time Deposit
30 days
1 year

0.25%-1%

2%-4.625%
2.75-5.25%

SDA

4.6875%

91-Day Treasury Bill

1.381%

UITF Bond Funds

Intermediate-Term Funds
(1-5 years)
Medium-Term Funds
(5-12 years)
Long-Term Funds
(more than 12 years)

Metrobank, RCBC,
UCPB, Sterling,
Bank of Commerce
various banks

ave Jul-Dec 2011

3.19-7.08%
3.38-9.07%

as of 23 Dec 11

8.92-15.09%

Commercial Paper
(coupon rate)

8.720%
10.000%
11.550%

First Phil Holdings

Meralco
First Gen Holdings

Preferred Stock
(coupon rate)

9.4578%

Ayala Corp

Common Stock

5%-6%
dividend
yield

PLDT, Globe,
China Bank, GMA7,
Ginebra San Miguel

(around 25 other publicly-listed companies

pay dividends regularly at about 2%)

MUTUAL FUNDS
(sampling from Business World)
1-Year Returns (%)
8th Jan 09 5th Jan 12
Stock Funds
(invested in stocks/equities)
ATR Kim Eng Equity Opportunity Fund
First Metro Save and Learn Equity Fund
Philam Strategic Growth Fund, Inc
Philequity Fund, Inc
Philequity PSE Index Fund Inc
Philequity Stock Index Fund Corp
Sun Life Prosperity Equity Fund, Inc
United Fund, Inc

(35.4)
(26.48)
(32.69)
(35.38)
(35.06)
(42.37)
(31.69)
(11.80)

(1.00)
7.48
3.23
6.86
8.46
4.85
2.95
(2.27)

Balanced Funds
(a mix between stocks/equities
and fixed-income instruments)
First Metro Save and Learn Balanced Fund
GSIS Mutual Fund, Inc
MFCP Kabuhayan Fund
Optima Balanced Fund, Inc
Philam Fund, Inc
Sun Life Prosperity Balanced Fund, Inc

(3.68)
(26.55)
(24.60)
(19.84)
(27.49)
(19.22)

5.99
1.38
(2.11)
6.25
3.34
3.23

Bond Funds
(all into fixed-income instruments)
ALFM Peso Bond Fund, Inc
Cocolife Fixed Income Fund Inc
Ekklesia Mutual Fund Inc
First Metro Save and Learn Fixed Income
Philam Bond Fund, Inc
Philequity Peso Bond Fund
Prudentialife Fixed Income Fund Inc
Sun Life Prosperity Bond Fund, Inc
Sun Life Prosperity GS Fund

4.47
5.51
2.03
2.14
2.53
3.19
(2.39)
2.06
1.80

6.36
7.05
9.97
12.86
6.17
8.68
2.06
7.44
4.89

MODULE #4
Manage

WHAT A MANAGED
INVESTMENT PORTFOLIO
LOOKS LIKE
Coop ABC
(30 November 2002)
Investments

Ave Yields

P 2.361 Mn

1.000 %

Regulator-Required Reserves

2.528

5.590 %

Contingency Reserves

5.679

5.178 %

Capital Budget Programs

3.069

5.605 %

10.463
4.765

10.640 %
10.441 %

Day-to-Day Operations

Surplus Funds Unearmarked

Trust Banking
Cooperatives
TOTAL PORTFOLIO

P 28.865 Mn

7.77 %

WHAT A MANAGED
INVESTMENT PORTFOLIO
LOOKS LIKE
How Coop ABC Manages
Its Investment Portfolio
(30 November 2002)
Institutions

Instruments

Standards:

Land Bank
Union Bank
BPI Far East
EPCI Bank

34%
25%
23%
18%
P 10.3 Mn

Exotics:

Trust Banking
Coops (15)
Philam Asset

56%
31%
13%
P 18.6 Mn

Investment
Appetite
Liquidity
Contingencies
Growth
Profitability

8%
28%
11%
53%
P 28.9 Mn

SAs & DDs

TDs: Banks
TDs: Coops
T-Bills
Mutual Funds
Trust Portfolio
(fixed-income)

8%
16%
20%
11%
9%
36%
P28.9 Mn

Tenors
30-31-35 days
60 days
89-90-91 days
180 days
360-365 days
3 to 5 years

12%
5%
14%
4%
25%
40%
P 28.9 Mn

Yields
1.000%
5.090%
9.925%
5.070%
7.590%
10.640%
7.77 %

MANAGING LIQUID FUNDS

ORGANIZE
for
FUTURE USE
identified
determine
AMOUNTS
and
TIMING
select
PARKING SLOTS
earn
GOOD YIELDS

planning
for
the
future

WHAT IT TAKES TO SET UP

YOUR INVESTMENT PORTFOLIO
OF LIQUID FUNDS
Block System
for organizing liquid funds

Risk Management System

for establishing playing fields

Operational System
for managing day-to-day activities

THE BLOCK SYSTEM

(a VRV Mgt framework)
Block 1

cash levels we foresee we

absolutely must maintain
to keep operations going

Block 2

reserves required
by regulatory agencies
(if any)

Block 3

Block 4

Block 5

funds we reserve
for contingencies
(self-imposed)
funds we reserve
(or are saving up)
for capital expenditures
no clear future use yet
ready to be redeployed
to other blocks (as and
when needed)
can be catch basin
for centralized funds
before redeployment

o
p
t
i
m
i
z
e

MANAGING
THE BLOCK SYSTEM
Determine the amounts of the Blocks properly
(sizing up each Block). Review quarterly.
Adjust upwards/downwards, redeploying where
needed. This optimizes the portfolio.
Dont carry an excessive Block 1. [It dampens yields.]
Be careful with Block 3. [Dont overfund.]
You can be very aggressive in Block 4 and Block 5.
[The yields must be high. There are enough of
low yields in Block 1 and Block 2.]
Lets not have too much in Block 5.
[This implies we dont have enough ideas
and capital budget programs for growth.]
Maximize yields within each Block.
Shop around accrediteds; bargain proactively.
Buy the correct instruments and tenors for your needs.

THE BLOCK SYSTEM

Caveats
This is not an allocation exercise nor
political manueuvering (pork barrel).
We are placing funds to fulfill definite purposes,
obtaining the best yields possible.
The funds will never be static.
Block monies will rise or fall depending on cash flows.
Vital components of the portfolio
should be reconstituted monthly (when depleted).
Managing the blocks
is a constant balancing act
blending safety-liquidity-profitability
in anticipation of future uses.
There is no single working formula
(only competent practice)
for liquid-funds-portfolio management.
[Each coop custombuilds its own portfolio!]

THE CLIMBS
INVESTMENT PORTFOLIO
Mission
CLIMBS was in search of a systemic approach to funds management, as mandated by its first 5-Year Strategic Plan (2000-2004). It needed a sound working model anticipating future management decisions and implementation moves.
Early October 2000, the newly recruited Finance and Investment Manager, Raymond Chaves (former PCIB Branch Officer), spent 5 days in Manila with VRV Mgt
to work out the coops investment portfolio.
Considerations
Unsolicited advice from Cagayan de Oro was plentiful. From the Cashier: Please
see to it I dont run out of operating funds. The Actuary Consultant suggested:
Watch claims payments carefully. Reserving against 3 months claims is okay, 6
months plays it safe. The Treasurer declared: Dont overlook whatever the Insurance Commission requires. And the General Manager counselled: Whatever
else you do, make sure you place funds with cooperatives. Without them, we
have no business.
From VRV Mgt, Mon received a mouthful. Arent you more than just a custodian
of liquid funds now available? What do you do when liquid funds grow bigger
than declared needs? When do you go defense, when should you go aggressive? Mon eagerly looked forward to after-work beers and sashimi.
Peculiarities
Coop insurance was a sales push business. It took 6-9 months to bring a nonmember coop into the fold; collective decision-making was slow. Premiums
flowed in monthly with little seasonality; but many coops habitually remitted
premiums 2 months late.
In 1999, the Insurance Commission required CLIMBS to maintain at least P2.2 Million in government securities as funds of last resort, not to be used for day-today operations. Come 2001, CLIMBS expected an increase to P3 Million.

Outlook
The ambitious target was P94 Million in premiums by 2004 (+30% compounded
annual growth). There would be more area offices, more marketing reps, plus
recruitment of independent agents.
Expected were new big accounts, more coops joining, and many small preferred stock buyers.

How would you organize CLIMBS

start-up investment portfolio?
How much money into which part
of the portfolio?
How short, or how long, the tenors?

Exhibit 1

STATEMENT OF OPERATIONS

Insurance Premiums
Less: Direct Considerations
Claims (Indemnities)
Commissions
Policy Reserve Increases
Add: Investment Income
Less: Operating Expenses
Staffing & Benefits
Utilities & Necessities
Managed Discretionaries
Net Surplus

Actual
1999

Projected
2000

Budgeted
2001

P19,681,714

25,307,227

35,870,014

4,273,660
4,706,551
2,516,431
11,496,642

4,990,626
7,015,084
3,186,182
15,191,892

7,592,524
9,858,839
4,703,984
22,155,347

1,743,850

1,644,929

3,139,456

4,300,187
2,297,946
2,051,119
8,649,252

5,114,590
2,576,705
2,948,444
10,639,739

6,235,718
4,154,993
4,676,038
15,066,749

P 1,279,670

1,120,525

1,787,374

Exhibit 2

STATEMENT OF FINANCIAL CONDITION

ASSETS
Current Assets
Cash & Near-Cash
Receivables
Other Currents
Investments
Fixed Assets
All Others

LIABILITIES & EQUITY

Current Liabilities
Legal Policy Reserves
Long-Term Debt
Other Liabilities
Trust/Retirement Funds
Various Others
Members Equity

Actual
1999

Projected
2000

Budgeted
2001

10,756,165
2,605,848
1,013,734
7,971,934
11,790,248
125,791

5,840,359
4,383,952
1,145,459
12,268,627
12,127,584
627,863

5,427,303
5,082,527
1,776,881
23,779,441
17,084,133
1,440,057

P 34,263,720

36,393,844

54,590,342

3,877,333
9,165,119
1,041,666

4,463,463
12,397,268
-

4,924,708
12,620,248
-

10,693,396
3,483,302
6,002,904

12,089,530
176,573
7,267,010

11,508,469
151,192
25,385,725

P 34,263,720

36,393,844

54,590,342

RISK MANAGEMENT
SYSTEM
# 1. Investment Policy
# 2. Accreditation System

(institutions and instruments)

# 3. 3-month Forward Cash Plan

(approvable by Mancom)
# 4. Monthly Reports

and Other Administratives

Do not ever change rules midstream.

Assume that the initially-worked-out
Investment Policy and Accreditation System
to be sound and appropriate
during the next 6 months,
after which you can
amend/revise/refine/overhaul.

RISK
The essence:
deviation from expectations.
The wider the swing
between realistic best and possible worst
on probable revenues, costs, investment size, returns,
the riskier the investment.
As a general rule,
the higher the returns, the higher the risks
lower-risk projects, lower returns.
Some misconceptions:
no loss, no risk
big investment, big risk
its guaranteed, therefore no risk
if its not dangerous, its not risky.
Imperative:
manage the risk(s):
making sure your expectations do happen
directly controlling the risk factor(s) whenever possible
insuring against deviations: buffers, fallbacks, Plan B
proper planning beforehand
putting controls (systems)
the correct person managing

INVESTMENT POLICY
(an example)

Objective

good, productive, profitable

usage of liquid funds
anticipating future needs as best we can

Target

Our benchmark is our coops savings deposit rate.

Our overall yield should try to beat this.

Systems

We shall adopt and master the block system.

Liquid funds shall be placed only
into institutions and instruments we accredit.

Investment
Posture

We shall be heavy into fixed-income instruments,

for predictability and lesser risk.
We shall maintain a healthy balanced mix of:
safety (accredited institutions),
liquidity (accredited instruments),
profitability (the higher yields among them).

This Investment Policy shall be

mandatorily updatable every 6 months
by the Mancom.

ACCREDITATION SYSTEM
(an example)

We shall place excess liquid funds

only into these institutions:
the biggest 15 banks
the top 3 trust bankers
(BdO, BPI, Metrobank)
government and its agencies
selected cooperatives:
those with stong ROEs (+ 20%),
who dont need the money (but can use it),
giving yields higher than 91-day T-Bills
Our accredited instruments shall comprise:
SDs, SDAs, TDs
Treasury Bills
Trust Banking
(to include also bonds, preferred and common stock)
We shall not invest into exotics
we do not understand.
Derivatives are anathema.
At this point, let us not get involved
with mutual funds.
This Accreditation System shall be
mandatorily updatable every 6 months
by the Mancom.

THE IMPORTANCE OF
3-MONTH FORWARD CASH PLANS
done at the branch level,
consolidated by Investment Manager
Month 1

Month 2

Month 3

Cash Flow
(our suggested format)
Beginning Cash
Cash Inflows
from loan collections
from deposits
from new equity
from borrowings
from dividends elsewhere
Gross Cash Inflows
Cash Outflows
to make new loans
to service withdrawals
to fund operating expenses
to invest in new projects
to repay borrowings
to pay dividends & pat ref
to accommodate whatever
Net Cash Inflows
Ending Cash

This way, you would know

which branches would need funds
(how much and when)
and which branches have excess liquid funds
(how much).

WHAT IT TAKES TO MANAGE

DAY-TO-DAY OPERATIONS
a designated Investment Portfolio Manager (IPM)
probable staffing of 2-3 by the time
the porfolio reaches P1 Billion
an Accreditation System in place
created/updated by Investment Portfolio Manager
- formalized playing field for funds
- no placements into non-accredited institutions
a Placement Book perpetually updated,
accrued-earnings basis
an Investment Committee for:
- investment policy formulating, and amending
- approving new institutions for accreditation

KIND OF WORK
THE INVESTMENT PORTFOLIO MANAGER
WILL BE DOING

Strategic
determine sizes of Blocks and designing the Portfolio
creating and updating the Accreditation System
participating actively in the Investment Committee

Operational
deciding on tenors, instruments, institutions
does homework (shopping, updating)
manages day-to-day transactions
(30-50 transactions on P20-P30 Million portfolio):
negotiating rates and placing funds
rolling over, pulling out, redeploying funds
maximizing yields within each block
moving funds from one Block to another
trying out newly-accredited institutions
makes reports
attending financial cocktails and social events

Administrative
maintaining the Placement Book
safekeeping of Investment Certificates
coordinating with various units

ROLES AND
WORKING RELATIONSHIPS
Investment Portfolio Manager (IPM)
works out and recommends the script:
cash organization, decision rules, accreditation system
undertakes day-to-day activities under the script
anything not in the script,
approved first by Investment Committee

Investment Committee
approves the scipt
reviews performance monthly
should not be supervising
transactions within the month

Board of Directors
receives reports
from either IPM or Investment Committee
as long as the script is being done and achieved,
leave the key people to do their job
troubleshooting (when the need arises)

IMPORTANT REMINDERS
on negotiations

best rates are from Makati head offices

(Branch Managers have limited authority)

best time to negotiate for rates are:

towards end of month and/or towards
end of quarter

slant placements towards end of

month

socialize with key people at head

offices

on transactions

keep the cash you need for operations

as managers, we should have foreseen

our cash needs for the next 3 months

never surprise the Investment Portfolio

Manager (except in serious emergencies)

evaluate Investment Portfolio Manager

performance on achievement of overall
yields, not absolute income per se

IPM can manage/control yields,

not the ups and downs of cash levels

on evaluating
performance

INVESTMENT PORTFOLIO MANAGER

WORK DESCRIPTION
(an example)
Reporting To

the President

Coordinating With

Financial Controller, EVP,

and Branch Managers

Work Purpose

to make productive and good-yielding

all existing excess/idle funds

Principal Tasks

flush out excess funds from

branches and Corporate Office
seek out, negotiate, and place funds
into reliable, good-yielding
instruments and institutions
manage the investment portfolio
to fund: withdrawals, capex needs,
and contingencies
make funds available when/where
needed by various operations

Qualifications

Business graduate
banking experience advantageous
This person is trainable.
Skills can be quickly learned,
but it takes 3 years to master.

THE COOP
GOES SHOPPING
Liquidity
Early November 2010, this coop had P41.5 Million in cash and equivalents. It
also carried P7.1 Million of equity investments into coop federations (mostly
pakikisama accommodations by the Board).
Loans receivable were P130 Million, deposit liabilities P137 Million (74% as time
deposits). A P3 Million staff retirement fund was intact. Come April 2011, the
coop intended to pay out P7.5 Million interest on capital and patronage refund.
Portfolio
After consulting with friends in financial circles, the new Investment Committee agreed to organize funds in this manner:
Operating Account
(1- months opexes)

2.1

Liquidity Reserve on Deposits

(25% of savings deposits)

8.9

Staff Retirement Fund

3.0

Equities into Coop Federations

7.1

Capex Funds for Next Year

(already identified)

17.0

Redeployable Funds
(for replenishing, for dividends,
for whatever else)

10.5

Total Portfolio P

48.6

Million

Million

Liquid funds were all in commercial banks as the Cashier saw fit: current accounts, savings deposits, short-term time deposits. Operating this portfolio
would involve a major rejiggling of bank accounts.

Policies
A number of decision rules were at play, though not formalized. The Investment Committee viewed these as preliminary, evolving, amendable as time
goes by.
#1. Beat the 91-day T-Bill rate (everybodys reference point). Overall yield of
a competent investment portfolio should achieve this.
#2. Buy and cash-in, or roll over, the financial instruments. No trading of securities; thats for the experts.
#3. On big placements (P10+ Mn) and longer terms (1 year or more), negotiate
with head offices in Makati. Bank branches have limited discretion.
#4. Placements into cooperatives are encouraged. Because their lending rates
are higher than banks, yield prospects are better.
#5. Dont directly buy into common shares of publicly-listed companies. Leave
that to the financial institutions managing growth funds (if we get into
these). We cannot monitor capital markets everyday; we dont know how.
#6. Every month-end, replenish any depletions of earmarked reserves. Thats
what redeployable funds are for.
#7. Whatever happens, let us not lose our shirts.

It was time to go shopping. The Manager was expected to submit the first-ever
Placement Plan to the Investment Committee.

What instruments and tenors

would you buy
for the investment portfolio?

Exhibit 1

COMMERCIAL BANKS
Savings and Time Deposits
(various banks)
Savings Deposits

0.5% to 1.75%

Time Deposits
(P1-P2 Mn)
30 days
60 days
90 days
1 year

1.875%-2.375%
2.125%-2.625%
2.375%-2.875%
2.625%-3.125%

Special Deposit Account

BSP product to mop up liquidity;
banks as product outlets;
no pre-terminations
Gross Interest Rate
30 days

4.1875%

Exhibit 2

GOVERNMENT SECURITIES
(as of 11th November 2010)
Treasury Bills
Gross
Interest Rates
91 days

3.400%

182 days

3.941%

364 days

4.165%

Treasury Bonds
Gross
Interest Rates
5 years

6.375%

7 years

5.375%

Treasury Notes
(FXTN, 5th Nov 2010)
Gross
Interest Rates
1 year

4.0677%

5 years

4.7788%

10 years

5.8953%

20 years

7.8750%

Exhibit 3

COOPERATIVES
Savings

Time

MASS-SPECC

8.5%
(1 year)

NATCCO

6%
(1 year)

Bansalan Coop Society

Oro Integrated Coop

CLIMBS

5.5%

7% (30 days)
to 12% (1 year)

4%

8.5%
(1 year)

preferred stock:
6%, open-ended

Exhibit 4

MUTUAL FUNDS
selected institutions,
1-year returns/yields

2007

2008

Latest
2010

24.85%
23.04%
20.58%
10.46%

-33.63%
-38.12%
-37.59%
-14.28%

75.70%
52.05%
40.59%
21.43%

25.93%
21.92%
18.55%
17.21%

-6.27%
-31.50%
-32.52%
-23.75%

68.70%
45.44%
45.94%
31.14%

5.76%
4.35%
4.29%
2.42%

5.26%
2.33%
1.91%
1.53%

10.95%
10.62%
8.02%
9.14%

Stock Funds
(invested in stocks/equities)
First Metro Save & Learn Equity Fund
Philam Strategic Growth Fund, Inc
Sun Life Prosperity Equity Fund, Inc
United Fund, Inc

Balanced Funds
(a mix between stocks/equities
and fixed-income instruments)
First Metro Save & Learn Balanced Fund
GSIS Mutual Fund, Inc
Philam Fund, Inc
Sun Life Prosperity Balanced Fund, Inc

Bond Funds
(all into fixed-income instruments)
Cocolife Fixed Income Fund Inc
First Metro Save & Learn Fixed Income Fund
Philam Bond Fund, Inc
Sun Life Prosperity Bond Fund, Inc

Exhibit 5

UNIT INVESTMENT
TRUST FUNDS (UITFs)
selected institutions,
1-year returns/yields
2007

2008

Latest
2010

BPI
Equity Fund
Balanced Fund
Bond Fund

20.39%
11.42%
6.20%

-42.57%
-26.80%
3.95%

44.91%
36.64%
5.78%

BdO
Equity Fund
Balanced Fund
Bond Fund

14.86%
17.39%
4.85%

-44.66%
-39.34%
3.40%

46.87%
36.95%
8.96%

TRUST BANKING
you declare your parameters;
trust banker customizes your portfolio
needs at least P4 Million to invest
10%-12% yields nowadays
depending on
debt vs equity instruments

MODULE #5
Issues and Concerns
of the Future

As your coop grows,

your liquid funds
will also grow.

Cash
Inflows

Cash
Outflows

prone to:
financial obesity trap
undisciplined discretionary spending
financial prodigality

Transitory
Means
Cash
Inflows
Various
Ends

How much of liquid funds

do we keep liquid?

How much do we program

for project investments?

How much do we prepare

for our usuals
(e.g., branching, new loans, etc)?

FAVORITE PROJECT INVESTMENTS

CONSIDERED BY COOPS
Most Predominant Projects
(from VRV Mgt consultancies)

housing
funeral parlor
memorial park
agri-business projects
gas stations
hospitals/clinics
schools and day-care centers

PLANNING
PROJECT INVESTMENTS
the best directional guide:
a good 5-Year Strategic Plan
(if any)

the need for investment criteria,

not just isolated project-investment ideas
(what are important to us? which have priority?
for what desired returns?)

classification of investment prospects,

their amounts, timing, and expected returns
(properly studied beforehand)
preferably biased towards growth

badly needed: an investment budgeting system

(not just the annual operating budget)

INVESTMENT
BUDGETING

(also called Capital Budgeting)

this is investment planning for growth
best done with
5-Year Strategic Plan as reference

1st step: classify investments into sets

(expanding existing business, new products/projects, cost-reduction moves, urgent necessities)
2nd step: present amounts and
their expected investment returns
(ROI, payback, IRR, NPV, or industry returns)
3rd step: prioritize the investment sets
and their specific projects,
referencing 5-Year Strategic Plan
4th step: ensure that the overall investment portfolio
beats cost of funds and cost of capital
(reconfigure investments as needed)
5th step: allocate available funds
from the liquid-funds portfolio