The first half of 2018 saw a more robust securities lending market than in 2017, according to the main industry body, Isla. Securities made available by institutional lenders within lending programmes jumped by 8% as volatility took hold.
Lenders continued to find revenue from activity associated with high-quality liquid assets - which the industry calls “HQLA” - yet there was also broader demand for equities, particularly in Asia, and for corporate bonds.
Equities are still a prominent feature of activity, but their share of global lending revenue has dropped over the past four years, and although high-quality government bonds continue to see record demand, a difference this past year has been the increased demand for non-investment grade bonds. This helps illustrate the basic revenue dynamic of securities lending. Just as in asset management, the more risky portfolios should usually gain the higher returns. It applies to lending portfolios, too.
The market environment could be opening up greater opportunities to revenues from beyond HQLA, and no stone will be left unturned as funds seek to gain additional alpha.
Nick Fitzpatrick, group editor, Funds Europe
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