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Securities Lending and Collateral Management – how are you being served?

From the desk of Andy Stephenson

Practice Manager and Benchmarking Lead, Pierpoint Financial Consulting

Asset owners and managers have come to place ever more reliance on an array of service providers to help them navigate growing complexity across all aspects of investment and trading. Securities lending and collateral management are no exception.

Securities lending

In securities lending, especially in the current challenging revenue environment, it’s crucial that beneficial owners take a proactive stance in seeking out better returns and in governance of their lending programme, and that service providers support them in this.

Beneficial owners can expect their agent lenders to offer holistic support and guidance in making the fullest use of the robust securities lending infrastructure – both to leverage the strength of the custodian banks’ operational structures and to encompass channels beyond the traditional agency lending route.

Beneficial owners have questions and views on key aspects of their agency lending programmes, amongst them: “How satisfactory are the returns? Does my agent’s coverage across markets and asset classes match my investment portfolios? Does the programme satisfy my governance and voting obligations? How proactive is the service provider when it comes to driving up returns, examining multiple routes to market and assisting with client-led programmes?” There are further key considerations surrounding the capability of each agent lender in meeting the needs of beneficial owners.

Collateral management

In the collateral management space, asset owners and managers are also in a challenging operating environment – what with a host of factors such as increasing usage of derivatives, mandatory clearing of unlisted derivatives and the need to collateralise counterparty exposures.

Service providers are being asked to deliver a range of crucial analytics, along with processing strength, risk management tools, and effective reconciliation and dispute resolution. Asset owners and managers are also asking key questions, including: “As my firm’s obligations grow, do my providers have the necessary architectural complexity, technical stack and reporting capabilities to reduce our operating burden? And is there transparency on all costs and fees?

How are you being served?

How do you get an authoritative take on how you are being served? Invariably, the traditional surveys fall short, being geared towards delivering awards for service providers by capturing favoured feedback from selective clients.

Pierpoint has joined forces with Margin Reform, the collateral experts, in partnering with ServiceMatrix – a new open platform which generates authoritative service benchmarks, based on frank appraisal of service partners’ strengths and weaknesses, with actionable data to drive improvement.

Our securities lending and collateral experts have worked with asset owners and managers to identify the key issues of importance to beneficial owners and asset managers, producing a definitive set of questions for each of Securities Lending and Collateral Management.

We invite you to complete a questionnaire, in strictest confidence. Be sure to have your say in evaluating your service partners. This is an opportunity to reward strong performance and provide frank guidance enabling service providers to make informed decisions on addressing shortcomings. Importantly, ServiceMatrix is an ongoing service benchmarking – with asset owners and managers able to reflect changing trends, and review and update aspects of their appraisal to reflect advances by their service partners. The corresponding reports are updated regularly to reflect the latest evaluations.

In return for your effort, ServiceMatrix will provide you with complimentary access to the corresponding detailed report – pinpointing the strengths and weaknesses of each provider, with actionable data on where improvement is needed.

Here are links to the questionnaires for securities lending and collateral management.

Please share this blog with both colleagues and your external network so that, together, we generate authoritative service benchmarks across the widest universe of service providers. Frank appraisal will deliver valuable data for the benefit of those lending securities or outsourcing collateral management, and for those firms contemplating doing so.

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