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Non-market-driven additional returns via securities lending

Additional returns from securities without restricting availability

Unlike securities purchasing, securities lending can generate additional returns on fund assets due to the lending fee. Particularly for bonds, additional yields from securities lending can be very significant due to persistently low interest rates. The lending fees received are considered distributable ordinary income and are reported separately in Metzler’s reporting system. With these additional earnings, the total return on fund assets can be increased without restricting the availability of the securities and while keeping mandate costs constant.

In securities lending transactions, the lender transfers securities from his portfolio to a borrower, the counterpart, who pays a lending fee. The borrower also provides collateral that exceeds the value of the underlying transaction, thus minimizing the risk of the lending transaction. Fees from securities lending are additional income on the portfolio holdings that increase the overall return without restricting the availability of the securities. With low yields on the bond market and uncertain equity markets, it makes sense to take advantage of this source of income, especially since costs and performance pressure remain the same.

Basic principle of securities lending

At Metzler Capital Markets' securities lending desk, we bring lenders and borrowers together, thus enabling institutional investors to generate additional returns on their fund assets. In all securities lending transactions at Metzler Capital Markets, our clients benefit from our long-standing specialist know-how, our long-term contacts with trusted brokers, and a high level of security based on an agreed intraday margin. Our experts manage the entire securities lending transaction according to the client's specific requirements – from contract negotiation and management to fee administration, settlement and collateral management. The focus is always on managing risk.