Financial assets management
The main principles of financial asset management are the following:
Safety. To implement this principle, we chose investments so that the expected negative change in their value due to adverse market fluctuations and possible default by counterparties and issuers remain within the acceptable risk level.
Liquidity. We invest in such a way that a substantial portion of investments could be sold without significant costs.
Profitability. We seek to maximise investment return over a 3-year investment horizon subject to safety and liquidity constraints.
Principles of financial assets management are publicly available in the Financial Assets Management Policy of the Bank of Lithuania (174.5 KB download icon).
How we manage financial assets
Financial assets are divided into four portfolios:
Each portfolio is subject to different objectives and individual investment strategies.
The objective of the investment portfolio is to maximise investment return in euro terms while diversifying risk and effectively using the risk budget. The investment portfolio may include debt securities denominated in euro and foreign currencies issued by European, North American and Chinese central governments, government agencies, international organisations and European and US corporates, also US government inflation-linked bonds and developed market equities. Derivatives, such as interest rate and bond futures, interest rate and foreign exchange swaps are also used for the management of the investment portfolio.
Investment portfolio’s decision-making process consists of two layers: the strategic benchmark, which establishes and dynamically adjusts the long-term strategic structure of investments, and active management, which takes decisions to deviate from the strategic benchmark in order to exploit favourable short- and medium-term market opportunities.
The aim of the reserve portfolio is to ensure a sufficient of amount official foreign reserves and liquidity. The reserve portfolio is comprised of US government debt securities. Given the objectives of the reserve portfolio, the currency risk of the portfolio due to US dollar fluctuations is not hedged; therefore, substantial fluctuations of this portfolio’s value in euro are possible.
The short-term portfolio comprises short-term investments and Lithuanian Government treasury funds in foreign currencies deposited at the Bank of Lithuania.
The gold portfolio includes gold reserves of the Bank of Lithuania. The gold may be invested in gold deposits or temporarily swapped into euro or other currencies. Taking into consideration the specific purpose and management of this portfolio, investments are made in such a way that the amount of gold does not change significantly and remains between 186–188 thousand Troy ounces (or 5.79–5.85 tons)
Investment composition and management results