In April 1999, 56.5 percent of plan sponsors told Institutional Investor that they employed a securities lending program; now 62.8 percent say that they have such a program in place. At the same time, custodial banks - the vendors that have historically managed the securities lending programs for pensions - have maintained their stranglehold on the service. Two years ago 90.3 percent of respondents said their custodians handled their securities lending plans; now 90.1 percent say custodians do the job.
More pension funds appear to be keeping only a small share of their securities lending fees, though the total dollar amounts they take in seem to be on the upswing. For instance, 8 percent of respondents to this month's Pensionforum survey keep less than 50 percent of their fees, compared with only 3 percent in 1999. Yet the percentage of respondents with income from securities lending of more than $100,000 has risen to 83.5 percent, from 78 percent two years ago.
This year 63.9 percent of respondents say their income is higher than it was last year; of those, 44.7 percent say that income increased by 10 percent or more.
Overall, plan sponsors are divided on the issue of risk and securities lending: 51.1 percent are very or somewhat concerned about risk, while 48.9 percent are not concerned.
Funds are also split over how closely they monitor their programs: 52.2 percent monitor very or fairly closely, while 47.8 percent either do a cursory monitoring or none at all. Some 18 percent of plan sponsors report that they monitor more carefully then they did two years ago.
For the most part, funds don't seem to have placed any particular limit on the percentage of their total assets that they lend. Although 20 percent say they lend less than 5 percent of their assets, 31.8 percent lend more than 25 percent of their portfolios.
Do you have a securities lending program?
Yes 62.8%
No 37.2
If so, what percentage of your total assets do you lend?
Less than 5 percent 20.0%
5 to 9 percent 16.5
10 to 14 percent 14.1
15 to 19 percent 4.7
20 to 25 percent 12.9
More than 25 percent 31.8
Who manages your securities lending program?
Our custodian bank 90.1%
A brokerage or investment banking firm 3.3
An independent securities lending firm 5.5
An in-house lending desk 1.1
Other 0.0
What portion of the fee do you keep?
Less than 50 percent 8.0%
50 to 59 percent 19.3
60 to 70 percent 53.4
More than 70 percent 19.3
Is income from securities lending a factor when you choose a custodian bank?
Yes, a major factor 21.5%
Yes, a small factor 35.5
No 43.0
What was your income last year from securities lending?
Less than $100,000 16.5%
$100,000 to $199,999 15.4
$200,000 to $499,999 24.2
$500,000 to $999,999 11.0
$1 million to $5 million 24.2
More than $5 million 8.8
How did this income compare with that of the previous year?
Higher 63.9%
Lower 36.1
If your income was higher, by how much?
Less than 5 percent 33.9%
5 to 9 percent 21.4
10 to 19 percent 17.9
20 to 40 percent 26.8
How much did your income from securities lending add to your investment performance last year?
Less than 25 basis points 98.9%
25 to 50 basis points 1.1
Are you concerned with potential risks in your lending program?
Yes, very concerned 3.2%
Yes, somewhat concerned 47.9
Not concerned 48.9
What kinds of risks worry you most? (Check all that apply.)
Counterparty risk 55.6%
Management collateral risk 55.6
The risk that we can't sell securities when we want to 33.3
Other 7.4
Are you reviewing your lending program?
Yes 25.0%
No 75.0
If so, which steps are you likely to take? (Check all that apply.)
Avoid investing collateral in derivatives or traditional investments 42.1%
Reduce minimum stated maturity 21.1%
Increase minimum overnight liquidity 10.5
Split the lending from the custodial contract 0.0
Reduce the program 0.0
Bring the program in-house 0.0
End the program 0.0
Other 42.1
How closely do you monitor the way in which your collateral is invested?
Very closely 20.7%
Fairly closely 31.5
Not very closely 41.3
We don't monitor 6.5
Do you monitor more carefully than you did two years ago?
Yes 17.8%
No 68.9
Can't say 13.3
If you don't engage in securities lending, do you think you will in the near future?
Yes 16.7%
No 43.3
Can't say 40.0
If you don't engage in securities lending, what is the main reason?
Profits don't justify the risks 36.4%
Don't like the common collateralization and accounting 6.1
Other 57.6
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
