In a regional briefing in Germany, the International Securities Lending Association (ISLA) brought together speakers from the European Central Bank (ECB), Deutsche Bank, DWS Group, Union Investment, State Street, and Morgan Stanley, speaking alongside ISLA’s Andrew Dyson, Adrian Dale and Farrah Mahmood.
Here are some of the key messages/highlights covered in the sessions:
• From a macro-economic perspective, and whilst post-COVID recovery is slowing in the Chinese economy, the US is suffering from a short and shallow recession. Core inflation in the EMU persists, with no real growth, with expectations that the ECB may not raise rates further but that they will remain high for at least the next 12 months.
• As we think about the ECB’s Eurosystem Securities Lending Facility, Christophe Beuve, head of Bond Markets and International Operations at the ECB commented on how collateral scarcity has been mitigated by the effectiveness of their program, but also that they have seen a trend away from cash to securities collateral.
• Whilst data would suggest German funds are under-represented compared to similar entities domiciled in Luxembourg and Ireland, the domestic securities lending market still remains vibrant and considerable.
• That said, disparity still remains between different institutional investors, but also within a firm itself, with a lack of understanding or knowledge around the real benefits lending can bring, and with a continued focus on concerns such as short selling.
• At the same time, the entry point for securities lending can be too high for smaller funds, who whilst having interesting lendable assets, are constrained by the lack of infrastructure, amongst other things.
• “It’s about keeping it simple”. The Investment Fund Addendum to the GMSLA has moved the dial somewhat in terms of making the product more accessible to German funds from a legal perspective.