Leading Asset Managers in Custody, Securities Lending and Collateral Management 2009: A Finadium Survey

Finadium Research Report

Leading Asset Managers in Custody, Securities Lending
and Collateral Management 2009: A Finadium Survey

Finadium
June 2009

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Traditional asset managers are recovering from the turmoil of 2008 and working to solidify their business models going forward. The combination of market upheavals and competitive threats has pushed them towards more diverse investment products and geographies. A new focus on risk, particularly in credit instruments, has led to the retrenchment of long-held investment positions. In turn, these managers have taken a newly critical look at their custodians, securities lending agents and collateral management programs.

Traditional asset managers once saw custody as an unshakable business. Post-2008, a new category of custodian counterparty risk has emerged that requires its own mitigation efforts. At the same time, asset managers are asking more from their custodians, including the ability to manage swaps, international ETF’s and other products that were once considered the preserve of hedge funds.

In securities lending, two distinct groups of funds have emerged. The first has a plan: they have taken a proactive approach to their programs and investments. The second is more reactive and relies on the advice of their custodians and securities lending agents. This report details the behavior and differing market perspectives of these two groups.

To better understand the needs and concerns of the asset management community, Finadium recently held a series of 27 detailed conversations with leading global asset managers in the US, Canada and Europe. We discussed current issues in custody, securities lending and collateral management, ranging from the development of custodian services for derivatives and long/short portfolios to what level of collateral is appropriate for which types of loans. Following our last year’s report, we found an industry in the midst of meaningful change.

This report should be read by custodians, securities lending agents, collateral managers, technology providers, lawyers and similar service providers to the asset management community. It contains core industry data and reflects an important cross-section of asset management opinion.

This report is 30 pages with 20 exhibits.

TABLE OF CONTENTS
■ Executive Summary

■ Finding the Front Office
– Methodology

■ Custodians as Critical Business Partners
– The New Category of Custodian Risk

■ The Changing Business of Securities Lending
– Custodians vs. Third Party Agent Lenders
– Attitudes towards Auctions and Exclusives
– Expectations for Growth in Securities Lending Revenues
– Exchanges and Central Credit Counterparties

■ Upgrading Collateral Management
– Equities and Other Non-Cash Collateral

■ Peer Advice for Running a Successful Securities Lending
and Collateral Management Program

■ Getting Serious About Risk Management

■ About the Author

■ About Finadium