Google Inc. (NASDAQ:GOOG) is a common corporate investor, just like a lot of other large companies who have loads of cash on hand. For many of these companies, they will use some of that cash to be institutional investors similar to hedge funds and banks. In past days, these companies would invest in some top-notch, high-investment grade investments in order to generate a modest yield with some security.
However, with the Federal Reserve keeping interest rates at all-time lows, Google Inc. (NASDAQ:GOOG) and other companies are finding themselves putting their cash at more risk, as these companies are doing into lower-grade investments in order to get the yields they want – but does that put their war chests in jeopardy?
A recent Reuters story makes the claim that Google Inc. (NASDAQ:GOOG) and similar companies are investing in riskier vehicles than in the pas – investments like longer-term investment-grade bonds, ‘junk’ bonds and even certain leveraged loans. Why is this a cliam? Because Google’s treasurer is not commenting on the company’s investments or its strategy.
It has been tradition for corporate treasurers to invest a company’s cash in high-quality corporate bonds and those with maturities of three years of less. But now, with the margins being so tight at this point, some corporate treasurers are now finding themselves focusing more on lower-grade investments, putting their companies’ cash at more risk in order to get similar yields they got in past years.
One portfolio manager said, “The anomaly here is that you have had Fed intervention that has created an artificially low Treasury curve and because corporate yields are at all-time tights and both investment-grade and high-yield bond spreads have had such a fantastic run in the last year, there are only so many places to go to get yield.”
What do you think of this story? Does this surprise you that Google Inc. (NASDAQ:GOOG) would put their cash at more risk? What are your thoughts about corporate investors and these types of strategies? Would you do the same or different things if you were a corporate treasurer? Let us know your thoughts in the comments section.
DISCLOSURE I own no positions in any stock mentioned.
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