B.I.S.S Research White Papers

Why Most Institutional Investors Still Don’t Lend

Gary Wright

Gary Wright

A leader in financial market innovation based on in depth knowledge of financial markets processes and specialising in data. Creator of business cases for new products and services in financial markets.
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At first glance the €21 trillion of securities available for loan at the end of 2019 seems a large figure and indeed it is. However, by various estimates, the total amount of institutionally managed assets was above €60 trillion at the same time. In other words, approximately 2/3 of institutional money is outside of lending programmes. I explore the four primary reasons why I believe this is the case.

By Roy Zimmerhansl

Suitability

Securities lending isn’t for every investor and here are five examples where lending is not an obvious
choice.

  1. There is a minimum size threshold below which the effort to obtain the requisite approvals and
    establishing the oversight infrastructure may not be worthwhile.
  2. Some assets are already available in abundance – think of the S&P 500 passive funds that are
    already available for loan – additional new lenders need not apply.
  3. Some regulators continue to ban domestic investors’ participation. For example, Spanish
    institutions are not permitted to lend domestic securities, so lending revenues for Spanish equities
    leave the country.
  4. Small-cap managers may decide not to lend due to concerns over short selling or loss of control
    tightly held companies.
  5. Some products are required to abstain from engaging in lending or repo.

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Gary Wright

Gary Wright

A leader in financial market innovation based on in depth knowledge of financial markets processes and specialising in data. Creator of business cases for new products and services in financial markets.
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