Three out of five pension plan executives surveyed by Finadium believe securities lending revenue will shrink over the next two years, a decline driven largely by a drop in hedge fund demand and other external factors.
Only 15% believe revenue will grow, while 25% believe it will stay unchanged, according to a report by Finadium, a financial markets research and consulting firm, Wednesday that details the survey results.
“Declines in hedge fund borrowing have reduced the size of the securities lending market by over 40% from its 2008 high; this in turn has meant a sharp reduction in securities lending revenues for plan sponsors,” according to the report, “U.S. Plan Sponsors on Securities Lending, Collateral Management and Custody in 2011: A Finadium Survey.”
Among the 98 corporate and pension plans surveyed, securities lending revenue fell 30% in 2010. In 2008, it had increased 8%.
“While plan sponsors recognize that 2007 and 2008 in particular were extraordinary, a revenue decline of 30% or more would certainly be noticed by boards and could potentially impact custody costs or other uses for this revenue,” the 46-page report said.
The public and private pension plans surveyed have $2.23 trillion in combined assets. The report includes findings of interviews with 27 plan executives and managers overseeing $894.6 billion in assets.