The one-time $330 million cash contribution establishes a market-based net asset value (NAV) per unit of the collateral pools held by the SSgA lending funds of $1.00 as of June 30, 2010. The cash contribution also enables SSgA to remove, as of August 2010, the redemption restrictions from the SSgA lending funds and mitigates potential liability concerns.
According to the announcement, State Street’s securities lending operations comprise two components: the SSgA lending funds, referenced above, with a broad range of investment objectives that are managed by SSgA; and an agency lending program for third-party investment managers and asset owners, the collateral pools for which are referred to as agency lending collateral pools. Redemption restrictions were instituted with respect to certain SSgA lending funds and agency lending collateral pools in the fall of 2008 during the disruption in the financial markets.
State Street said it has identified potential inconsistencies with its implementation of those redemption restrictions applicable to certain agency lending collateral pools. The company has established a reserve of $75 million to address these issues.For its agency lending program clients, State Street also announced a plan to increase client access to liquidity. By the end of 2010, State Street intends to separate agency lending collateral pools, with total net assets of $51.6 billion and a weighted average NAV of $0.989 as of June 30, 2010, into two different pools. One pool will have complete liquidity, and the other pool, holding primarily longer-dated securities, will be subject to continued restrictions on redemptions.