Finadium has released a new report in our Finadium for Investors series, “Perspectives on Direct Borrowing and Lending”. The report defines Direct Borrowing and Lending, sizes the market, evaluates pros and cons and offers recommendations for getting started.
While not yet a mainstream choice, Direct borrowing and lending is now a serious option for securities lenders and repo cash providers on the one hand, and hedge funds and REITs on the other. Going Direct offers new avenues for financing distribution and the potential for new revenues in financing and investment activities. This report looks at why Direct can offer value, reviews the disadvantages, and offers next steps to asset and cash holders, hedge funds and REITs. The report also provides a market sizing of the bilateral and Direct marketplaces to put the opportunity of going Direct in context.
The single biggest obstacle to Direct borrowing and lending is asset owner comfort with the counterparty. Securities loans today are most often made to large banks and broker-dealers on behalf of their hedge fund clients, with securities lending agents providing counterparty default indemnification. Repo transactions are with those same banks. Expanding an acceptable counterparty list requires new ways of thinking and new ways of working with service providers to reduce risk and maximize institutional stability.
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