Deutsche research predicts massive increase in securities lending by 2010

Deutsche Bank has released to its global prime finance clients a report that predicts the boom in 130/30 investment strategies could generate an additional USD600bn of borrowing demand for the securities lending industry by 2010.

The report, Why Securities Lending Matters to the 130/30 Manager… and Vice Versa, was commissioned by Deutsche from Spitalfields Advisors, an independent specialist consultancy firm focusing on the securities lending market.

The report notes that the Tabb Group predicts that assets under management in 130/30 and similar short extension investment strategies, which are currently estimated at some USD140bn, have the potential to grow to more than USD2trn over the next three years.

The report says the proliferation of 130/30 strategies will create significant additional demand to the existing USD4trn of outstanding equity loans. This could have a significant impact on pricing and access to borrowing in mid-tier and hard-to-borrow securities for 130/30 managers and existing market short-sellers.

Increased demand could transform the securities lending marketplace from an opaque, inefficient market, the Spitalfields report argues, as the demand for better exchanges linked to a central counterparty will increase and pressure for increased transparency will continue to grow.

The report concludes that for managers looking to increase their strategies' short exposure, the selection of a prime broker or custodian to support a 130/30 strategy is a critical decision that may determine a fund's success or failure.

Spitalfields Advisors is a consultancy firm specialising in advising institutions active or considering becoming so in the securities finance markets, particularly beneficial owners and asset managers. The firm assists institutions embarking on securities lending reviews, analyses existing programmes and suggests opportunities for improvement.

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