The T+1 Settlement Cycle – Unlocking Opportunities for Investment Managers




The transition from the T+2 to the T+1 settlement cycle has presented investment managers with a host of new opportunities. This shortened settlement period offers increased liquidity, reduced counterparty risk, and enhanced capital efficiency. In this article, we will delve into the specific advantages that investment managers can harness in the T+1 era.

Improved Liquidity Management

The T+1 settlement cycle empowers investment managers with enhanced liquidity management capabilities. With faster access to funds after selling securities, managers can swiftly deploy capital into new investment opportunities. This agility allows for more efficient portfolio management, including rebalancing positions and taking advantage of time-sensitive market conditions. The reduced settlement time also offers flexibility in meeting redemption requests or reallocating assets, providing investment managers with greater control over cash flows and optimizing their investment strategies.

Enhanced Risk Mitigation

By shortening the settlement period, the T+1 cycle reduces counterparty risk for investment managers. The shorter timeframe between trade execution and settlement minimizes exposure to potential defaults or market disruptions. Investment managers can swiftly identify and address any settlement discrepancies, ensuring timely resolution and mitigating operational risks. This enhanced risk management capability fosters investor confidence and strengthens the overall stability of the investment ecosystem, enabling investment managers to focus on generating returns while minimizing potential disruptions caused by settlement delays or failures.

Increased Portfolio Turnover

The T+1 settlement cycle facilitates higher portfolio turnover for investment managers. The reduced settlement timeframe enables quicker reinvestment of capital from sold positions into new opportunities. Investment managers can swiftly capitalize on emerging market trends or seize short-term trading opportunities without being encumbered by longer settlement periods. The ability to recycle capital more rapidly leads to increased portfolio turnover, potentially generating higher returns and capturing alpha in dynamic markets. Investment managers adept at navigating the T+1 settlement landscape can optimize their investment strategies and achieve superior performance in a shorter timeframe.

Enhanced Operational Efficiency

The T+1 settlement cycle necessitates operational adjustments, but it also presents investment managers with an opportunity to streamline their processes and enhance operational efficiency. With the need for faster trade confirmations, investment managers can leverage automation and technology solutions to improve post-trade workflows. Automated confirmation matching systems, real-time connectivity with custodians, and robust reconciliation processes can minimize manual errors, reduce settlement failures, and optimize operational efficiency. By embracing technology and optimizing operational workflows, investment managers can drive cost savings, improve scalability, and allocate resources to value-added activities such as research and client servicing.

Key Takeaway

The shift to the T+1 settlement cycle offers investment managers a range of opportunities to enhance their operations and investment strategies. Improved liquidity management, reduced counterparty risk, increased portfolio turnover, and enhanced operational efficiency are among the key advantages. Investment managers that adapt to the T+1 settlement cycle and leverage these opportunities are well-positioned to thrive in today’s dynamic and time-sensitive investment landscape.