Finadium Survey: Asset Managers on Securities Lending 2022

Finadium’s 2022 survey of asset managers in securities lending reveals how large complexes are assessing market volatility and changing regulatory priorities in their securities lending programs. Across revenue and collateral trends, the tangible impact of Environmental, Social and Governance (ESG) parameters and how managers approach corporate governance, this survey provides a guide to best practices for asset managers and their service providers.

Since 2008, Finadium’s regular survey of asset managers in North America and Europe has tracked current operational practices and forward-looking thinking of this sector. This year’s report covers 27 large institutional asset managers with $40.5 trillion in assets. The 37 professionals we spoke with had direct responsibility for treasury, securities lending, portfolio management, operations, legal and risk. Product lines include UCITS funds, mutual funds, ETFs, individual accounts, and insurance assets.

As asset managers consider what securities lending means for their businesses, there are newer options like creating a central funding desk offer an outlet for enhancing securities lending operations and revenues, as well as to consider lending within a broader firm context that could deliver meaningful returns. The opportunity to select what bonds go for margin in OTC derivatives or reverse repo transactions, compared to lending those bonds out in a securities lending program, is a core definition of collateral optimization at a bank. The ability to reduce costs by leveraging internal cash assets rather than borrowing from a bank line of credit creates self-reliance. While securities lending may not be a part of every transaction like this, it is an important and sometimes large part of the overall financing story. The idea of collateral optimization and “being your own bank” have reached a segment of the buy-side market.

Fee splits reduced for asset managers for the fifth survey in a row in spite of increased costs for agent lenders. Our database of US mutual funds and ETFs shows a range of agent lender and similar fees across 92 asset management complexes, ranging from a low of 2% to a high of 40%. Our data are collected from Statements of Additional Information and include both the stated fees to an agent lender plus administrative or other fees when the lender is using an affiliate or itself as the lending agent. European data show some fees rising slightly while others are shrinking, and no change to fund management practices of charging an internal fee in addition to an agent lender fee. Total fees to lending agents and fund managers together ranged from 6% to 35%.

Building on peer-level information, asset managers may use this report to take steps to improve their programs, increase their information exchange with their agent lenders, evaluate internal securities lending desks, and mark their competitive positioning relative to other funds. In an era of heightened fee competition, running a productive, risk-adjusted securities lending program can provide a market advantage, so long as it is done well. Agent lenders, custodians, technology vendors, legal advisors and other service providers may also benefit from this report, as it provides a cross-sectional view of the asset manager experience and buying appetite for securities lending-related services.

A direct link for Finadium subscribers to this report is https://finadium.com/finadium-report-desc/asset-managers-on-securities-lending-2022-a-finadium-survey/

For non-subscribers, more information is available here.

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