Â鶹´«Ã½ lending returns cover fund costs - Finadium
14 September 2011 Concord
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Â鶹´«Ã½ lending income can be a significant offset to fund expenses, according to Finadium's fourth annual survey, Leading Asset Managers on Â鶹´«Ã½ Lending, Collateral Management and Custody.
Out of a sample of 164 mutual funds that were lending securities, the average fund returned 3.14 basis points from their lending activities. Although this is not a substantial amount when compared to investment returns, it was sufficient to cover custody costs by more than four times and to make a nine percent reduction in the total expenses of the funds, writes Josh Galper, managing principal at Finadium and author of the report.
Other findings show that higher securities lending returns are skewed towards a small group, with greatest returns earned by funds investing in small-cap and global securities.
It was also the first year that asset managers reported an alternative fee arrangement - the most popular being a basis point fee on either the value of assets lent or the value of a portfolio. This means the securities lending agent will receive a flat fee and is then obligated to produce an unexpected return or better, according to Finadium.
"It is our expectation that this type of arrangement will become more popular as the years go on," writes Galper.
Out of a sample of 164 mutual funds that were lending securities, the average fund returned 3.14 basis points from their lending activities. Although this is not a substantial amount when compared to investment returns, it was sufficient to cover custody costs by more than four times and to make a nine percent reduction in the total expenses of the funds, writes Josh Galper, managing principal at Finadium and author of the report.
Other findings show that higher securities lending returns are skewed towards a small group, with greatest returns earned by funds investing in small-cap and global securities.
It was also the first year that asset managers reported an alternative fee arrangement - the most popular being a basis point fee on either the value of assets lent or the value of a portfolio. This means the securities lending agent will receive a flat fee and is then obligated to produce an unexpected return or better, according to Finadium.
"It is our expectation that this type of arrangement will become more popular as the years go on," writes Galper.
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