US Plan Sponsors on Securities Lending, Collateral Management and Custody in 2012: A Finadium Survey

January 2012

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Now in its fifth year, the Finadium survey of US plan sponsors looks at the attitudes and opinions of these institutional investors across securities lending, collateral management and custody.

In securities lending and collateral management, plan sponsors face a series of ongoing challenges including balancing resource expenditures to revenues generated, identifying appropriate investment vehicles for collateral management, and understanding the lending activity in their ETFs, mutual funds and other commingled investment pools. Changes brought on by the growth of defined contribution plans will have slow moving but long lasting impacts. Finding solutions to these problems is important for plan sponsors to feel that their securities lending programs are successful and to avoid potentials for disruption or program mismanagement.

In custody, the slow burning fire of underfunded custodians relative to client needs continues to simmer, and with each passing year more assets move to non-traditional investments leaving custodians asked to do more with less. The pot did not boil over in 2011 but plan sponsors are aware that they are moving closer to the tipping point when they must either rework their custodian relationships or seek out third party vendors to perform data aggregation and reporting tasks.

The good news is that solutions are on the horizon: plan sponsors have options for managing their programs and generating reasonably safe, risk-adjusted returns. The choice is whether institutions elect to sort out smaller issues now or wait until they become bigger issues later.

This report has been written for plan sponsors and their service providers to provide insights into the market environment for 2012. For plan sponsors, 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 the plan sponsor community.

This report is 47 pages with 28 exhibits.

■ Executive Summary

■ Balancing Costs and Revenues in the Asset Servicing Markets
– Methodology

■ Opinions on Securities Lending Programs
– Plan Engagement in Securities Lending
– Revenues and Utilization
– Securities Lending Agents and Routes to Market
– Fee Splits
– Benchmarking and Program Oversight

■ Investment Decisions in Collateral Management
– Non-cash Acceptance

■ Paying for Custody
– The Value of Bundling or Unbundling

■ Forecasting the Impact of Dodd-Frank and
Shadow Banking Regulation

■ Securities Lending from Commingled Investment Funds

■ Finding Solutions to Ongoing Problems
– Resource Constraints
– Low Collateral Returns
– Fixing the Custody Model

■ About the Author

■ About Finadium


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