Finadium
July 2014

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The seventh annual Finadium survey of asset managers looks at the thinking, behavior and decision making of asset managers in securities lending programs. The securities lending market is bifurcating; large managers recognize the potential revenue and liquidity benefits of lending while smaller participants question the revenue opportunity going forward given current conditions. The decision to reinvest cash collateral in overnight treasury or low return money market funds has exacerbated this split. This report assesses the firm-wide reasons for lending and which rewards are worth what risks in the current financial markets environment.

Following recent upheavals in securities lending by financial regulations, a new market is coming into focus that is more readily understood than in previous years. The fog of uncertainty is clearing; market participants have a good sense of where their products are heading and what the future holds. This is a welcome change for securities lending managers who had previously been struggling with their roles in the market. Revenues are down overall, but now managers can begin to go forward with the tools they have rather than wait for the next major regulation to shake up the landscape.

The Finadium annual survey of asset managers in securities lending moves past the basics of program management to look at the most complex issues in the market today and in the coming year. This survey asked 39 executives at asset managers about revenue generation vs. risk, the value of the collateral transformation trade and the potential impact of securities lending central counterparties (CCPs). In addition, we evaluate the published securities lending returns of 182 lending US mutual funds.

This report should be read by securities lending and collateral managers at asset managers and insurance companies, as well as their custodians, agent lenders and other service providers.

This report is 44 pages with 28 exhibits.

TABLE OF CONTENTS

■ Executive Summary

■ A Market in Better Focus
– Methodology

■ Engagement in Securities Lending
– Custodians, Third Parties and Internal Desks
– Benchmarking

■ Revenue Generation, Fee Splits and Future Expectations

■ Changing Attitudes on Counterparty Indemnification
– Indemnification and Securities Lending CCPs

■ Cash and Non-cash Collateral Options
– The State of Non-cash Collateral Guidelines
– The State of Collateral Transformations

■ The Continued Shadow of Regulations

■ About the Author

■ About Finadium

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