Finadium has released a new survey report, “Institutional Investors on Sorting Out the New World of Securities Finance.” This report is the result of conversations and data collection from 99 institutional investors worldwide including pension plans and Sovereign Wealth Funds.
The views of institutional investors in securities lending are diverging, the result of long-held expectations about a market that values hard to borrow, intrinsic value loans over utilization of general collateral. At the same time, the broader securities lending market is slowly evolving into securities finance where lending can be one component of a firmʼs financing and liquidity strategy. Larger pension plans and sovereign wealth funds recognize the shift for both themselves and their borrowing counterparties, and are following asset managers and insurance companies in taking advantage of structural change. Meanwhile, smaller institutional investors continue to see lending as strictly a return opportunity, albeit one that has shrunk considerably over the last three years.
While this divergence may result in some institutions leaving securities lending, the remaining institutional lenders will benefit from more concentrated borrower demand, an ability to use central counterparties (CCPs) as appropriate, and continued provisions for counterparty default indemnification. The new environment is not without its own challenges however, such as a need for internal coordination on the value, risk parameters, liquidity needs and ultimately revenue opportunities of securities finance going forward.
This Finadium research report is a deep dive into the thinking and practices of institutional investors in securities lending and related markets including repo and swaps for financing, together referred to here as securities finance. Part of the report serves as a historical compendium of collected data. Other parts, notably the sections on securities lending vs. swaps and on CCPs, look more towards the future. In sum, we aim to present a view of institutional behavior in the securities lending market and document how institutions are embracing, or not, the idea of securities finance as a broader category.
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For non-subscribers, more information on this report and subscription information is available on the Finadium reports home page.