Peer groups of 1

There is heightened interest in accurate peer group benchmarking within the securities lending market. This is partly because many asset owners feel like they have made so many changes to their programs that they are peerless! On the back of the webinar on this subject yesterday, we can lay out the feedback received from the industry which centers around weighted peer group comparisons, pre-defined benchmarks and the need for collateral visibility.

What has changed to generate this thirst for new performance comparisons? With low interest rates, the only way to make money is through the intrinsic lending fee and this is causing asset owners to focus very hard on the fees being charged by their Custodial lender. This therefore leads to the Custodian to point out that the proportion of their client’s portfolio that is made up of in-demand securities is critically important. We now have the ability, via our Excel toolkit, to weight the group according to the client’s holdings for tighter comparison. You can see some examples of how client weighted peer groups are constructed in the PowerPoint slides that go with this piece. (click here for presentation slides)

The other trend is the rise in fixed income lending. The average utilization for bonds, over the past year, is near 19% versus 7% for equities. But, when benchmarking this activity it is key to take into account the type of collateral being accepted. To this end, despite having a collateral flexibility field, we are only as good as the data we receive. There are two solutions here. We’d ask you to follow certain clients in updating this field in your data file so that users can redraw the benchmark according to collateral type. However, we are keen to go the whole hog and are happy to receive collateral line by line from clients. We do this for our Risk Explorer product so have the capability to process this. This could lead to an extremely powerful benchmark.

Finally, our flagship benchmarking product is infinitely flexible when it comes to choosing your peer group. Users can filter by fiscal location, industry type, collateral type, open versus term trades, AUM, lending route and % of dividend entitlement. Users may be pleased to know that pre-selected peer groups are now on offer. After all, it is pretty normal for benchmarks to be selected by a third party.