Finadium: US Mutual Fund and ETF Revenues from Securities Lending Cash Collateral Pools

A new report from Finadium quantifies how much money is at stake for US fund complexes in their securities lending cash collateral fees. In a high interest rate environment, fund complexes can charge fees and ensure that their clients earn a profit on cash funds. In a low interest rate environment, charging even modest fees can be difficult if not impossible.

The COVID-19 crisis will soon create an earnings problem for US mutual fund and ETF managers that receive cash in their securities lending programs and reinvest that cash in their own collateral pools. For at least 28 of the top US fund complexes analyzed, these collateral pools generate fees and assist in liquidity generation for their broader cash management activities.

Using data reported from 2019, this report follows the money to see how much fund complexes earned from their securities lending cash collateral management activities. We compare this figure to the overall management fee earned by each fund to understand the impact of lower expected fees and potential interest in the securities lending business. Our analysis shows which managers will experience the greatest discomfort from a reduction of revenues and by how much. Our source of data is Finadium’s ongoing collection of US mutual fund and ETF filings on their securities lending activities with the SEC, and additional data gathering on the reported cash collateral vehicles of fund complexes.

The lessons in this report should be useful to any securities lender reliant on fees for the management company to help sustain their program. Industry participants — including banks, investors and regulators — may find that the revenue shortage that fund complexes will soon face could impact their overall business activities.

A direct link to the report for Finadium research clients is

For non-subscribers, more information is available here.

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