Perspectives on Direct Borrowing and Lending
Finadium
January 2015
While not yet a mainstream choice, Direct borrowing and lending is now a serious option for securities lenders and repo cash providers on the one hand, and hedge funds and REITs on the other. Going Direct offers new avenues for financing distribution and the potential for new revenues in financing and investment activities. This report looks at why Direct can offer value, reviews the disadvantages, and offers next steps to asset and cash holders, hedge funds and REITs. The report also provides a market sizing of the bilateral and Direct marketplaces to put the opportunity of going Direct in context.
The single biggest obstacle to Direct borrowing and lending is asset owner comfort with the counterparty. Securities loans today are most often made to large banks and broker-dealers on behalf of their hedge fund clients, with securities lending agents providing counterparty default indemnification. Repo transactions are with those same banks. Expanding an acceptable counterparty list requires new ways of thinking and new ways of working with service providers to reduce risk and maximize institutional stability.
This report is included in the Finadium Executive Briefing series, providing briefings and analysis to the asset owner and asset manager community.
This report is 15 pages with 2 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ What is Direct Borrowing and Lending?
■ How Much Direct is Conducted Today?
■ Pros and Cons
■ Getting Started
■ About the Author
■ About Finadium