Finadium Research Report

Institutional Investors on Custody, Cash Management
and Securities Lending: A Finadium Survey

January 2008

Institutional investors are a key driver in the financial services market: where they go, so follows much of the industry. This last year has seen institutions shaken in their belief that they are immune to credit market fluctuations and that revenues from some activities, such as the “found money” of securities lending, will simply go up over time. Institutions are working to identify the right mix of bundled and unbundled service providers for their needs. The largest funds have been the most aggressive, but even smaller funds have grown in their sophistication and interest in the once-obscure topics of custody, cash management and securities lending.

IISurvey_QuoteGraphicFinadium has released a major survey of institutional investors on custody, cash management and securities lending. Our interviews covered 40 leading public, private and nonprofit funds managing over $1.3 trillion in assets. We supplemented our conversations with data from the annual reports of 107 US public retirement plans; these plans managed $2.9 trillion. Our open-ended interview allowed ample room for institutions to offer their opinions beyond a yes-or-no survey; their comments are reflected in our report.

Our interviews focused on several core subject areas, including pricing, methods of lending securities and the value of separating RFPs for previously bundled services. We asked about earnings from auctions and exclusives and the perceived value of lending agents including broker-dealers.

We predict that 2008 will emphasize the difference between institutions that are content with their long-standing bundled custodial arrangements and institutions that are actively pursuing customized services to maximize returns, keep costs low and manage internal resources. Institutions that have stepped through the gate of unbundling are continuing along at a rapid pace, exploring the limits of credit and transparency in securities lending and related markets. At all levels, institutions are looking to their custodians, agents and other service providers to come up with the next big thing. Coming off of the credit crisis of 2007, 2008 will be the year of product development in custody, cash management and securities lending.

This report is 41 pages with 33 exhibits.

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? Executive Summary
? Introduction
– Methodology
? Custody: Bundling Services and the Bill
– Satisfaction with Custodial Services
– Understanding Fees for Custody and Bundled Services
? Securities Lending: Costs versus Benefits
– Agent Lending
– Auctions and Exclusives
– Direct Lending
? Cash and Collateral Management: Responses to the Credit Crisis
? Three Trends for the Future in Custody, Securities Lending and Cash Management
– Separating the RFP for Custody and Securities Lending
– Finding the “Best” Route to Market
– Credit, Transparency and Direct Lending
? About the Author
? About Finadium


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