US Pension Plans in Securities Lending: A Corporate Governance Perspective
Finadium
August 2020
US public pensions play an integral role in the securities lending market with roughly 93% of large funds currently participating through either a custodian or third-party lending agent. Securities lending can add from one to eleven basis points to a pension’s overall portfolio return, with an average return of two basis points across all analyzed funds. The difference in returns is largely due to cash and non-cash collateral policies, which in turn reflects the risk that funds assume in their programs.
Although lending is widely accepted, considerations on proxy voting and stakeholder engagement may cause asset holders to review their involvement; this is an important part of the ESG conversation currently underway. While most plans support voting of their securities whenever there is an impactful decision, placing securities lending in the context of broader fund objectives can offer a valuable perspective on the corporate governance process.
In this report, Finadium offers a summary of 96 US public pension securities lending programs. The report details revenues, fee splits, collateral policies, assets under management, and assets on loan. This report will be useful for US pension professionals and their service providers looking to benchmark the corporate governance of their securities lending programs against their peers.
Table of Contents
- Executive Summary
- The Scope of US Public Pension Transparency
- – Methodology
- Revenues and Expenses
- – Fee Splits
- Assets on Loan, Collateral and Collateralization Levels
- – Cash and Non-cash Collateral Policies
- Data for Corporate Governance
- About the Author
- About Finadium LLC