A new report from State Street based on TABB Group survey data says that most asset managers, based on a representative sample, have enough collateral to post for cleared OTC derivatives. Some additional data points in the State Street report flesh out other recent survey results from both Rule Financial and Finadium.
The State Street report,Charting New Territory: Buy-Side Readiness for Swaps Reforms, says that of the asset managers surveyed, 63% say that they have enough collateral to post on CCPs. Of the 37% that have insufficient collateral, 23% expect to engage in collateral transformation trades while the remaining 14% will acquire the necessary securities in the market.
Further, 90% of respondents expect to store their collateral with their custodian. The remainder will leave collateral with their trading counterparty.
The State Street/TABB survey included 34 asset managers across long-only, hedge fund, insurance company and bank managers. In our experience, this is a reasonable number to gather a sample of representative thinking in the asset management space. By the time a survey reaches at least 30 interviewees, similar enough themes have emerged across conversations that conclusions can be drawn.
The State Street/TABB report can also be seen in the context of recent buy-side surveys from both Rule Financial and Finadium. In May 2012, Rule reported that:
– 67% of buy-side respondents believe collateral charging will have an impact on their returns, with 43% of the respondents classing the impact as ‘significant’.
– The Rule research finds that banks are converging OTC, exchange, prime and collateral businesses into a single organizational entity. Their buy-side clients are starting to respond in turn.
In June 2012 Finadium released the first part of its annual asset manager survey with SunGard distributing the results. We found six key themes that asset managers said were most important in considering their collateral management activities:
1) Regulations and CCPs will be the fundamental drivers of change
2) Change will be driven from the top
3) Leading firms have committed to collateral management as a front office activity
4) Operations groups need to invest in better tools for CCPs and collateral management
5) Cultural change needs to occur industry-wide, not just at asset managers
6) Asset managers want to adapt to change without having to suffer through another crisis but wonder if that can happen
These surveys present a portrait of buy-side firms as slowly getting ready to post collateral for OTC derivatives and even more slowly considering all collateralized products as part of one pot. But, there is continued forward motion.