Why central banks appoint external reserves managers
Central banks frequently use fund managers to maximise the return on their external reserves. This can be an important source of income for a central bank as well as a means of institutional strengthening. Careful selection of the right fund manager can bring many benefits.
The decision to appoint an external fund manager can be a cultural shift for a central bank, particularly if progressing from an investment strategy based on bank deposits, normally with guaranteed returns, to more volatile investment instruments.Good fund managers will emphasise the benefits of a longer term approach. The fund manager and the client should be clear on the central bank's risk tolerance and the realistic future expectations on reserves.
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