CalPERS believes it can nearly double the annual returns it has gleaned from its securities lending program, based on the efficiency of the new process. A result that bodes well for plan sponsors – and not so well for bank custodians – that currently split these revenues.
The new process is designed to meet the needs of large pension funds, mutual funds and other major investors including online custodians.
Securities lending is a portfolio strategy in which institutional investors lend securities held by their portfolios to earn incremental income on their holdings. Agents such as large custodian banks have traditionally acted as a middleman, facilitating the flow of information and securities between borrowers and lenders, investing transaction collateral and sharing the resulting fees with the lending plan.
CalPERS and eSecLending ( www.eSecLending.com ) have already held their first auction by telephone, during which they beta tested the website software according to a press release.
In addition, certain investment management firms within the Old Mutual family of companies are expected to join CalPERS in subsequent auctions, and other large pension funds will be invited to participate in future auctions as well. Old Mutual acquired United Asset Management this summer.
eSecLending’s auction system will:
- Use the Internet to bring together lenders, borrowers and brokers in one place
- Allow price discovery by utilizing a multiple-stage bidding process and offering lendable securities packaged in discrete tranches
- Capture a large centralized pool of data on securities lending performance that will be used for a comprehensive benchmarking system.
Burlington, Vt.-based eSecLending serves as the primary developer of the web platform and software, and is responsible for staffing and managing the auction process. CalPERS is a minority partner in eSecLending and contributes its securities lending expertise to the venture as well as its huge securities lending program.
Old Mutual Plc is the majority owner of eSecLending, and brings to the table collateral management and securities-lending brokerage activities in Europe through its subsidiary Gerrard Group Plc.
– Nevin Adams firstname.lastname@example.org
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