Why Most Institutional Investors Still Don’t Lend

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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