Financial markets are currently uncertain and volatile but, if the recent experience of SGSS is representative of the investment management industry as a whole, securities lending is still proving to be an interesting product for investors. “Clients who over the past two or three years have become more or less totally risk-averse are now looking for an element of performance as well as capital preservation,” observes Anne-France Demarolle, Head of Liquidity Management at SGSS and freshly returned from the annual ISLA conference in Lisbon. “With this in mind they are calling for a collateral management service that will deliver a yield pick-up of some kind,” she adds.
This is where a combination of collateral management and securities lending can play a key role, she continues. “Reinvesting unused cash or lending out unused securities can help add a few basis points to the total return.” In the current market, every little bit helps, more so than at any other time in recent history. Reflecting the lessons learnt from the Lehman debacle, and as the mark to market of OTC derivatives could prove to be very volatile from one day to another, most cash reinvestment will be in the overnight repo market, she notes.
The aftershock of the Madoff and Lehman crises in particular helped to drive the creation and evolution of essential new services, such as the growing closeness of collateral and liquidity management, a topic discussed in a previous issue of Momentum.
“The ability to price a range of instruments and manage collateral effi ciently and costeffectively is important today not only for pension funds but also for insurance companies and corporates, and even for departments within local and central government,” notes Philippe Rozental, Head of SGSS Asset Servicing. “A surprising number of institutional investors do not possess the capability, the knowledge nor the systems to calculate the true value of such products. Institutional investors also need assistance in managing collateral by managing, for example, essential margin calls.”
SGSS offers valuation services and expertise on a broad spectrum of markets: credit, equity, foreign exchange, fixed income and commodity, and products: including credit default swaps, swaptions, options, interest rate swaps. SGSS also provides middle office, collateral management, pricing and fund administration services needed to ensure post trade services on OTC trades successfully and cost-effectively. SGSS’ offer, combined with their first-rate service on stock loan and cash reinvestment, provides added value for clients in a context of increasing need for collateral management.
“Our services not only deliver a greater ability for institutional investors to challenge prices, they also ultimately enhance portfolio transparency, providing key functionality which the large majority of asset managers just aren’t equipped to carry out in-house,” comments Philippe Rozental. “Today, we have several pension funds on our collateral management services and they really appreciate this expertise and our flexibility to adapt our platform and solutions to their needs,” adds Philippe Rozental.
