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Securities Lending: Back to School Special!

From the desk of Roy Zimmerhansl,

Practice Lead, Pierpoint Financial Consulting

Top tips: Securities lending back to school special! Image source: UzbekIL from Pixabay

It’s been a tough year for just about everyone from a personal perspective and for many firms, including securities lenders. Depending on whose data you look at, revenues were down in the first half of the year by as much as 14%. I don’t know what the rest of the year holds but there are a wide range of thoughts and views out there.


I’ve spoken in the past couple of months with a long/short manager who was relishing the short-selling opportunities he expected to arise during the second half of 2020. However, the recent announcement by the Financial Services Commission (the South Korean regulators) that it was extending the short-selling ban until 15 March 2021 won’t help fill anyone’s budget hole anytime soon.


Information derived from Aurum’s proprietary database shows that one of the best performing hedge fund strategies this year is Equity Long/Short, and this continued in July. As the chart below shows, Equity Long/Short generated 2.45% in July, but as has been seen time and again since the bull run that began in the aftermath of the Global Financial Crisis, the best performance has been in merely being long the market and popular shorts such as Tesla have cost short-sellers dearly.


We regularly write about ways for lenders to improve their portfolio returns and make their assets more attractive to borrowers and here are three examples:

We think there are some excellent suggestions in these posts and recommend that lenders consider our recommendations. The problem, of course, is that to follow most of the ideas we present in other posts, lenders probably need to make some structural changes – new collateral types or parameters, new borrowers, new markets, new assets, etc.

Frankly, we don’t see many firms that have a big appetite for change at the moment. Seemingly working from home has forced more than enough change on companies, and they are clinging on to the status quo wherever possible. Apparently, some firms have a white-knuckle grip on any continuity that gives them comforting memories of a life before COVID-19 irrespective of the economic impact.

So, what is a lender to do? Hang on and hope for the best? In line with the beginning of September and the start of the school year for many in the northern hemisphere, we have a “Back to School” three item checklist for you. These are all ideas that you can check and implement today without needing any additional approvals. These may all seem ridiculous, but time and again, I have seen people overlook simple items that can contribute to income almost immediately.

Here you go:

  • Step 1 - check that all your portfolios have been enabled for lending

Your funds have probably been growing over the years, and it is easy for a new fund to get set up, but someone forgets to tick the box to allow lending. Don’t you hate it when the box tickers don’t tick the boxes?

  • Step 1a ensure that all the assets in your funds that are permitted to be loaned out are enabled for lending.

As an example, I saw one client who had traditionally been equity-only, so when they started buying fixed-income assets, they were ignored, until an obvious “special” triggered the client to enquire why it wasn’t being loaned out

  • Step 2 - make sure that you are lending in all the markets where your agent is live.

Sometimes agents will open a new market, and some funds get overlooked. Or maybe you didn’t have any investments in a country when you last checked but now do

  • Step 3 - ask your agent for their approved borrower list

Match that against the list of banks and broker-dealers that you can trade with and see if there are any that have been overlooked.

You might think that these are obvious items and frankly they are. However, I have seen simple processes fail time and again, and these sorts of changes not get picked up. If that’s the case for any of your funds, it costs you money needlessly.

They’re all so easy to fix, so why not take a few minutes today and hopefully generate some additional revenue for your funds immediately!

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