About 80% of all asset owners in consultant Finadium’s database had securities lending programs in place in 2013, with larger asset owners being more likely to have such programs, according to a Finadium report.
Among those with more than $25 billion in assets, 95% had securities lending programs, and all with more than $50 billion did, according to the report.
Five percent of asset owners surveyed or interviewed by Finadium ended their programs last year, pulling a combined $24 billion from securities lending, but three asset owners restarted their programs, bringing $66 billion into the market.
Interviews with asset owners showed that they were disappointed in the amount of revenue their securities lending programs generated, although they understood it was because of a move to less risky investments, said Josh Galper, managing principal at Finadium. Also, asset owners were concerned about the cost of counterparty default indemnification, although 81% of institutional lending programs saw such indemnification as important.
“Lending may not be exciting in 2013, but it is low risk, with revenues that continue to add at least some value to the majority of organizations,” Mr. Galper said. “The overriding questions center on whether low securities lending revenues are worth the effort and how costs of capital will impact the continued important service of indemnification.”