Portfolio management, where next? 

During March 2023, Global Investor/ISF held the annual US Beneficial Owners’ Roundtable in New York with the help of EquiLend as the lead sponsor. The roundtable was moderated by Global Investor’s Managing Director who was joined by an esteemed group of speakers to discuss recent trends, developments and challenges
in the securities finance space.

A portion of the 2023 US Beneficial Owners Roundtable is available in the video above. See below for a transcript of the highlights. 

Amélie Labbé, Managing Director, Global Investor Group: Brooke, I’m keen to get your thoughts on where demand is coming from for the beneficial owners and how it’s impacting liquidity and if you could maybe give us some comments as well on revenue opportunities that potentially exist as well for beneficial owners when it comes to alternative forms of collateral, for example?

Brooke Gillman, Global Head of Client Relationship Management, eSeclending: I think that the biggest trend is the approach that beneficial owners are taking globally is very different than it was a few years ago. Beneficial owners are looking at it more as one of their investment tools.

Depending upon what their goals are they’ll use security lending or repo differently. We still see traditional securities lending programs and activities, but we’re also starting to see securities finance used more as a broad financing tool. Asset owners are looking at securities financing from a big picture perspective. We are seeing a lot of collateral transactions and a lot of collateral funding trades.

It’s all about using securities finance as a tool in the portfolio management decision making process. As more asset owners adopt this approach, we will continue to see growth in our industry. They will also continue to evolve how they look at their programs and therefore providers will adapt and offer new solutions and services in order to try to keep up.

Mike Stamm, Director of Financing & Collateral Management, State of Wisconsin Investment Board: Brooke you made a point about a holistic view of sec finance, and that is something we think about a lot. What is the best fit for our assets to meet our needs for liquidity, revenue, collateral, and safety. And that fit may include swap, futures, repo, and sec lending. What we look for is opportunities to reduce bad carry trades, if we are borrowing cash to reinvest in a lower yielding finance structure, we should examine that. And it can be more difficult than you expect to identify those implicit carry trades. I find it a very interesting puzzle to fit together.

Amy Dunn, Executive Director, Americas, Head of Relationship Management, J.P. Morgan: To Brooke’s point around broadening the conversations to include more than just traditional securities lending, the ability for an organization to provide this suite of services under one umbrella will be a differentiating factor when selecting a provider especially as the industry continues to evolve.

Mike Saunders, Head of Agency Lending, Americas, BNP Paribas: So it’s this concept, at least the one we see, of the securities lending activity becoming central to the funding needs throughout an organisation. Securities lending is one tool for liquidity management, the kind of cheapest form of collateral. We see this as part of the reason for the increased utilisation of corporate bonds in the market.

Yes, of course, a lot of that is interest rate driven but I can tell you that a fair amount of beneficial owners have been in the market lending their portfolios just to raise cash that they’re using for other purposes. So, it’s this whole concept and I think, Brooke, you touched on it before, that securities lending cash is cheaper than credit facilities, revolvers and things of that nature. The general premise is, I see these walls breaking down and securities lending is now securities finance.