Securities Lending Enters the Market Mainstream

Financial News, January 7, 2002 | Go to article overview

Securities Lending Enters the Market Mainstream


If markets continue to be difficult next year, then more pension funds may enter the securities lending arena for the first time in a hunt for enhanced revenues.

Mark Faulkner, chief executive of Securities Finance Systems (SFS) the UK-based risk management systems provider founded by Faulkner and Charles Stopford Sackville in 1998, says: "Our experience is that pension funds, like every other asset manager, will be sharpening their pencils and looking for ways to cover costs and generate revenues.

"They will be dusting down old files on securities lending, which were not necessary during the rampant bull market."

The pension funds of Imperial Chemical Industries (ICI), the UK chemical company, and the BBA Group, the UK group serving the industrial and aviation markets, have already announced their intention to consider securities lending (see table).

Meanwhile, the [pound]3.8bn (E6.1bn) London Regional Transport pension scheme expects to make [pound]250,000 for its first full year of lending securities. Its securities lending programme, run by JP Morgan Chase, its global custodian, has so far produced returns of [pound]68,000 for the half-year ending March 31, 2001. At year-end, the LRT fund was lending [pound]128m against [pound]132m taken in collateral.

Financial News analysed the annual reports of 30 pension funds to determine the securities lending practices of UK-based schemes.

More than a quarter of the UK pension funds analysed generated additional revenues via securities lending programmes.

Only five of the 10 funds that reported securities lending as an activity, reported the revenues separately. The majority just stated the amount that was on loan and what collateral was taken.

Many pension funds that participate in securities lending, including the [pound]9.9bn British Airways Pension Investment Fund, use the revenue to cover costs such as custody, not to maximise revenues.

The British Airways pension fund, which uses Deutsche Bank as custodian and securities lender, lent [pound]797.7m as at March 31, 2001, generating an income of [pound]1.6m. In 2000, the pension fund lent [pound]404.9m, making [pound]1.2m in revenues.

In moments of market instability such as 1998, the pension fund will stop lending.

The majority of UK pension funds that lend securities do so via their custodians, often on an indemnified basis, excluding cash re-investment. But Faulkner points out that this is not the only route to market.

Pension funds can lend via their fund managers or directly, although each route carries a different risk and reward profiles.

Faulkner notes that some of the largest UK pension funds are actively looking at alternative routes, as many borrowers are keen to develop direct relationships.

The US market is more sophisticated and pension funds there are already using a combination of options. The Florida State Board of Administration is one such fund. It uses Deutsche Bank, State Street and Metropolitan West as agency lenders, and Credit Suisse First Boston, Lehman Brothers, State Street Global Advisors and Barclays Global Investors as principal lenders.

The Dutch railway pension scheme is one European fund that already lends directly.

But the Philips pension fund in Eindhoven and ABP, the E150bn Dutch public health employees pension fund, have taken the custody route and have given State Street Corporation a licence to lend.

Ralph Vitale, executive vice-president and head of the global securities lending business at State Street in Boston, says: "Securities finance is a way to offset rising costs, as well as add incremental performance returns. European funds in particular are substantial cross-border investors, an activity which increases costs."

The Nkr522bn (e65.2bn) Petroleum Fund, run by Norges Bank, Norway's central bank, has made Nkr128. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Securities Lending Enters the Market Mainstream
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.