Market veterans say expectations of leaner days ahead — even as equity markets around the world continue to barrel higher — are greasing the skids for the latest resumption of securities lending.
The New Zealand Superannuation Fund, for example, has resumed lending its holdings of stocks and bonds in June this year, roughly eight years after shutting down its program following losses on its securities-lending collateral during the crisis.
In the US, State Street data show that 17 of the largest 25 managers, in terms of assets under management, “engaged in sec-lending in some shape or form; the other eight, we understand to be actively looking” at doing so, said Jansen Chua, a Hong Kong-based managing director and head of securities finance, Asia-Pacific, with State Street.
In Asia and Europe, pickup in interest is most noticeable now among asset owners, including insurers. In the US, where interest among big asset management companies has lagged that of asset owners, they may be moving to narrow the gap, he added.
Bill Kelly, New York-based managing director and global head of agency securities finance with BNY Mellon Markets, said passive money managers have been at the forefront of the asset management industry’s involvement in securities lending but more recently it’s been active managers looking to join the fray.
With the huge scale of some of those active managers, and new trading strategies bringing an expanding array of assets in institutional portfolios into play, the potential for new assets to enter the industry are as strong now as any time in recent decades, said Kelly. He said industry data shows a securities-lending pool of $15 trillion to $16 trillion in stock and bond assets globally now. At present, with long-biased markets globally, the amount of assets being lent stands at just under $2 trillion, down from $3.5 trillion pre-crisis.
If the need for incremental returns is powering that broad growth, for those clients returning now to the industry it’s “the creativity around more structured, thoughtful lending programs” tailored to the needs and preferences of individual clients, that’s … bringing them back to the market,” said Penelope Biggs, a London-based executive vice president and chief strategy officer at Northern Trust’s corporate and institutional services.