US Plan Sponsors on Securities Lending, Collateral Management and Custody in 2011: A Finadium Survey

Finadium Research Report

US Plan Sponsors on Securities Lending, Collateral Management and Custody in 2011: A Finadium Survey

January 2011

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US plan sponsors continue to work on the complex challenge of defining best practices with their securities lending, collateral management and custody providers, according to Finadium’s fourth annual plan sponsor survey. Based on interviews and annual reports of 98 US plan sponsors with over US$2.23 trillion in assets, this report is an unbiased look at the attitudes and decision drivers of these institutions in the asset servicing markets today.

US plan sponsors report a new level of nuanced thinking about the importance of securities lending and collateral management. Having learned hard lessons in 2008 and 2009, lending is now seen primarily as an investment product with the risks and rewards that entails. Plan executives have moved on to new questions about program management, including how to best allocate revenues internally and the value of lending from commingled mutual fund accounts. While it is well known that institutions have reduced their risk appetite in collateral management over the last two years, we continue to find thinking about how reinvestment plans can be used to generate additional returns in tightly controlled risk environments, and concerns about the unintended consequences that new restrictions have brought.

In custody, plan sponsors recognize that reporting, performance measurement and accounting services are not free, and that the bill paid today rarely reflects the true cost of service delivery. Auxiliary services including securities lending, transition management and foreign exchange can not always be counted on to make up the difference. If plan sponsors are going to get the technology and customer service they want and expect, this situation will likely need to change.

This report has been written for plan sponsors and their service providers to provide insights into the market environment for 2011. For institutions, the report offers a peer-based analysis of program and service provider management. For service providers, the report offers a candid look at the needs and desires of their plan sponsor clients.

This report is 44 pages with 29 exhibits.

■ Executive Summary

■ Getting Back to (A New Kind) of Business
– Methodology

■ Engagement in Securities Lending Programs
– Revenues and Utilization
– Evaluating Securities Lending Agents
– Fee Splits
– The Uses and Context of Benchmarking

■ The Business of Collateral Management
– In-Sourcing, Outsourcing and Selection of Collateral

■ Perceptions of Custodial Services
– Areas for Improvement
– Separately Managed Accounts vs. Omnibus Accounts

■ Trends to Watch for 2011
– Liquidity in the Credit Markets
– Paying the True Cost of Custody
– Lending from Commingled Investment Funds

■ About the Author

■ About Finadium


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