June 2012

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Most US asset managers are beginning to consider the implications of effective collateral management for their portfolios. Basel III and Dodd-Frank are driving this change, each with their own overlapping requirements for collateral management on and off central counterparties (CCPs). Although there are standout exceptions, US managers are reluctantly embracing the new rules. They recognize that they must act soon or risk either an operational failure or a loss of competitive returns relative to their more advanced peers. US managers also know that building a strong collateral management practice requires changing the culture of collateral management, including how it is viewed and the expertise of internal operations and portfolio management teams.

In this report we present why building a culture of collateral management in the US is important from a financial and competitive standpoint. We demonstrate that without more advanced practices, the majority of US asset managers will lose ground to domestic and international firms that are already more sophisticated in their collateral usage. This is not a hypothetical argument; in an era of highly competitive returns, 25 basis points on an annual basis may mean the difference between a top-rated fund and a fund that comes in at the middle of the pack. The sooner that US investment firms look closely at the collateral management that new financial regulations mandate, the better they will be able to maintain their competitive standings in the marketplace.

The report also presents six lessons on building a US culture of collateral management as noted by asset managers themselves. These lessons range from the mechanics of internal collateral management to market developments that will encourage managers to take action sooner rather than later. These comments present the first results from our 2012 asset manager survey.

This report should be read by asset managers evaluating how to optimize their collateral management processes and how to communicate their actions to investors. It will also be useful to service providers looking to support asset managers with collateral technology, operations and outsourcing.

This report is 20 pages with 6 exhibits.

This report is available at no charge courtesy of SunGard.

■ Executive Summary

■ Why Collateral Management Matters
– Sizing the Collateral Management Market
– Methodology

■ Six Lessons on Collateral Management from US Asset Managers

■ Looking at the Numbers: A Portfolio Example

■ Institutionalizing Change and Collateral Optimization

■ About the Author

■ About Finadium

■ About SunGard

■ About SunGard’s Apex Collateral


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