From the February 2011 issue of Treasury & Risk magazine

Securities Lending Outlook

Lending out securities from a pension plan's portfolio can generate extra revenue for the plan, but a recent report shows pension plan sponsors see that revenue shrinking.

Sixty percent of plan executives expect income from securities lending to decline over the next two years, reflecting less demand from hedge funds as well as the impact of new collateral guidelines, according to a survey of 98 U.S. public and corporate pension plans by Finadium, a financial markets research and consulting firm.

Finadium says revenue from securities lending has already contracted, with 2010's total down 30% from 2009 levels. Revenue had risen 8% in 2009.

Lending out securities "can mean millions of dollars" for a pension plan, says Josh Galper, a managing principal at Finadium.

Securities lending lost some of its appeal when some plans had difficulties during the financial crisis with the collateral used to back lending. Those problems brought home to plan sponsors the need to manage the risks involved, Galper says. "Securities lending is really an investment product like S&P 500 funds and requires a certain level of regular oversight to be successful."


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