Finadium
February 2014

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Finadium’s 2014 survey of institutional investors is a study of balancing current risk/return mandates with expectations of future market change. While no singular regulation itself will reshape securities lending, a combination of rules across multiple jurisdictions will make lending more or less profitable, encourage participants to stay in or leave the market, and affect the long-held importance and provision of counterparty default indemnification. This report is a prequel to the actual change as new institutional thinking emerges including the interest of institutions to take on additional credit and maturity trades, also known as Shadow Banking.

This study relies on two pools of data. The first is a proprietary survey of institutional investors in North America and Europe conducted in late 2013, including public and private retirement plans as well as sovereign wealth funds. The second is the annual reports of US public plan sponsors. In total, we spoke with or gathered data from 100 institutions managing US$4.2 trillion in assets. The results of the study show revenues, fees and forward-looking expectations from a cross-section of institutional investors in the securities lending market. The data also help explain how institutional investors expect to change their programs going forward, and what this means for agent lenders, bank counterparties, hedge funds and market makers.

This report is for institutional investors and their service providers to provide insights into the market environment for 2014. For institutions, the report offers a peer-based analysis of securities lending and collateral management programs including the risks and value of lending, whether for revenues or contingent liquidity, as emerging regulations change the market. For service providers, the report offers a candid look at the thinking of the large and important institutional investor client base. This report focuses especially on how institutions see themselves and their peers fitting into the securities lending landscape over the next two to three years.

This report is 40 pages with 25 exhibits.

TABLE OF CONTENTS

■ Executive Summary

■ Waiting for the Other Shoe to Drop
– Methodology

■ Opinions on Securities Lending
– Program Participation
– Revenues
– Fee Splits
– The Agent Lender Relationship and
the Value of Indemnification

■ Cash and Non-cash Collateral Acceptance
– Data on Securities Lending Collateral Holdings

■ Institutional Investors as Shadow Banks

■ Expected Regulatory Impacts
– The Interests of Smaller Funds
– Which Institutions Should Lend Securities

■ About the Author

■ About Finadium

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