A recent article by Risk Magazine, No end of peer-to-peer demand for securities financing, says that “Peer-to-peer (P2P) securities financing – including repo – is an increasingly key piece of the financing toolkit for large asset managers. And as the buy side comes under pressure to show it can access the cash it needs to support related margin calls, managers are looking to find non-bank sources of financing, including other funds.”
We disagree with the title and the main point of the article. In our 2024 survey of agent lenders, we found that P2P has a role but that it is limited, and unlikely to see extensive growth growing forward. Our survey results found that:
Peer to Peer (P2P) is seen as a useful offering but not a growth segment; some beneficial owners can participate but for the most part this is a market for a subset of Global Peer Financing Association (GPFA) members where agent lenders are providing the plumbing. The reasons for P2P utilization tend to be more about financing and liquidity provision as opposed to short sale coverage. Clients appreciate being able to transact at the midpoint of borrow rates and can use both repo and securities lending structures to execute. For their part, agent lenders can provide indemnification, operations and valuation support. Indemnification between large real money clients is seen as a low-risk proposition but agents may draw the line at indemnifying hedge funds. The specifics of service provision are often sorted out with clients on an as-needed basis; agents can go through a list of questions to figure out how best to position themselves and their clients in the process. P2P without an agent lender appears to have very little interest: agents, and banks more generally, provide an important layer of service that clients do not want to forgo.
Half the agent lenders we spoke with said that they saw some demand for P2P while half said they so no demand at all. No agents reported large amounts of demand, and we know from surveys of asset owners and managers that only a select few beneficial owners will engage in P2P without an agent lender’s participation.