At this time we have constrained the instruments to be 2-year government bonds, the shortest duration assets that meet our liquidity criteria. The process of determining the SAA for un-hedged reserves is about selecting a portfolio that balances diversification and liquidity requirements against return or yield under “normal” market conditions.
To ensure that un-hedged reserves are effective in meeting their purpose we constrain the investment universe and the potential allocation outcomes by strict diversification, liquidity and credit minima and maxima. Our allocation minimums and maximums force 70 percent of our allocation, before we optimise the remaining unconstrained 30 percent using a Markowitz model.