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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

Making short-term cash reserves work harder

This opinion piece is 12 months old

In addition to their long-term invested portfolios, charities will need to hold a portion of their reserves in cash to meet shorter-term expenses and capital costs. These may be for distributions to charitable causes or day to day operational expenses. This cash needs to be managed with the same care as an invested portfolio to maximise returns and ensure it meets cash flow needs.

The right weighting in cash is a balancing act. It needs to be sufficiently large to manage any necessary liabilities, but not so large as to compromise long-term investment returns. Long-term cash returns are still below those of stock markets or fixed income portfolios, so there will be an opportunity cost to holding cash.

At the same time, cash rates will vary, so it is important to ensure that this cash is working as hard as it can be. The returns available from shorter-term deposits have improved as global interest rates have risen. Nevertheless, cash savings accounts have not always kept pace with central bank rate rises.

Why use a liquidity portfolio? Liquidity portfolios can be used to generate a stronger return than that available in a cash savings account with a commercial bank. They can also bring diversification and help with risk management. Rather than holding large amounts with a single bank, or smaller amounts spread across multiple banks, liquidity portfolios will have a range of exposures, reducing default risk.

Any cash portfolio needs to be managed with a keen understanding of an organisation’s short and long-term liabilities. Building a portfolio starts with the broader cashflow context of the organisation’s operations, and the associated liquidity requirements. This helps us understand how much should be held in cash and when that cash needs to be available.

The type of securities in a liquidity portfolio - Liquidity portfolios will comprise a variety of assets, depending on the risk profile and time horizons. However, the ‘core’ assets for most liquidity portfolios will be short-term government debt, combined with cash funds, usually managed by the large fund groups.

Flexibility over time - Liquidity portfolios are flexible and can take advantage of shifting market opportunities. Today, for example, we find the majority of opportunities are in shorter-dated bonds, but if the shape of the yield curve were to change, we would revisit this assessment. Likewise, if a charity’s cashflow needs change, the structure of the portfolio can be adapted accordingly.

Liquidity portfolios can be established as a separate portfolio, segregated from the primary investment portfolio. They are an efficient way for a charity to manage its short-term cash needs and liabilities.

Evelyn Partners can help you to set up a liquidity portfolio and make your short term cash reserves work harder. Please feel free to get in touch with me at

Keith Burdon is Director, Investment Management at Evelyn Partners

Important Information

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. The value of investments can go down as well as up and investors may not get back the amount invested. Past performance is not a guide to future performance.

Issued by Evelyn Partners Investment Management Services Limited, authorised and regulated by the Financial Conduct Authority