Securities Lending and Asset Holders: Tracking US Equity Inventory Supply

Finadium Research Report

Securities Lending and Asset Holders:
Tracking US Equity Inventory Supply

Finadium
March 2007

In this data-driven report, Finadium sizes the market and charts trends for US equities in securities lending. This market, typically seen as a means of covering short positions, is also a significant revenue stream for institutional asset holders. While the lending practices of asset owners will not change overnight, they are showing signs of evolution with important implications for the future.

Our analysis covers US Equity lending activity by pension plans, mutual funds, hedge funds and retail broker-dealers, including styles of lending, return rates on loan portfolios and evolving trends in the market. We discuss hedge funds becoming more active lenders, how pension plans lend their assets and the possibility of securities lending products becoming a derivatives market in their
own right.

According to Josh Galper, Managing Principal of Finadium and author of the report, “hedge funds and other trading firms are just beginning to see the revenue opportunities in the long side of securities lending. The more these firms participate in the market, the more that securities lending will become a unique asset class.”

This 22 page report contains 12 exhibits and 5 data tables.

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TABLE OF CONTENTS
■ Executive Summary
■ Sizing the Market for US Equity Inventory
■ The Business of Securities Lending
■ Inventory Suppliers of US Equities
– US Pension Plans
– Mutual Funds
– Hedge Funds
– Self-Clearing
– Retail Brokers
– Clearing Firms and Institutional Broker-Dealers
– Summing Up
■ Looking Forward
– Enter the Hedge Fund
– A Zero Sum Game, For Now
■ About the Author
■ About Finadium