Asset owners, anticipating less-forgiving markets, continue to come back for a second bite of a securities-lending apple that left many with a bitter taste when markets seized up during the global financial crisis.
The NZ$35.36 billion ($24.5 billion) New Zealand Superannuation Fund, Auckland, revealed Oct. 17 that it had resumed lending its holdings of stocks and bonds in June, roughly eight years after shutting down its program following losses on its securities-lending collateral during the crisis.
Market veterans say expectations of leaner days ahead — even as equity markets around the world continue to barrel higher — are greasing the skids for the latest resumption of securities lending.
In a low-yield environment, the need to pursue every basis point of incremental return is driving "renewed interest in (securities) lending from clients and prospects" alike, said Jansen Chua, a Hong Kong-based managing director and head of securities finance, Asia-Pacific, with State Street Corp.
The hunt for enhanced returns is spawning an "open mindedness" when it comes to putting "very idle assets" to better use, agreed Penelope Biggs, a London-based executive vice president and chief strategy officer at Northern Trust Corp.'s corporate and institutional services.
"I can't think of a time when we've seen as much interest for the product," both from asset owners that have left and are coming back now or asset owners who are looking at securities lending for the first time," said Dane Fannin, Northern Trust's Hong Kong-based head of capital markets, Asia-Pacific, and an 11-year veteran of the industry.
State Street's Mr. Chua said in Asia and Europe, pickup in interest is most noticeable now among asset owners, including insurers. In the U.S., where interest among big asset management companies has lagged that of asset owners, they may be moving to narrow the gap, he said.
State Street data show that 17 of the largest 25 U.S. managers, in terms of assets under management, "engaged in sec-lending in some shape or form; the other eight, we understand to be actively looking" at doing so, he said.