Global securities lending revenues in 2019 fall on macro uncertainty

Trade wars, Brexit and central bank actions weighed heavily on hedge funds' securities lending programmes. 

Global revenues for securities lending programmes dropped in 2019 as trade wars, Brexit and central bank actions weighed heavily on hedge funds.

According to DataLend, the market data arm of securities finance specialist EquiLend, revenues declined 13% to $8.66 billion in comparison to 2018, which was a record for recent years.

The decline in revenue was felt globally in equity and fixed income markets, while on-loan balances and fees also declined across all regions, with the exception of Asia-Pacific.

“Global macro uncertainty, driven by trade wars, Brexit and central bank actions, resulted in a general lack of conviction by hedge funds and alternative investment managers in 2019,” said Nancy Allen, global product owner, DataLend.

“As uncertainty loomed, the securities lending markets experienced lower on-loan balances and fees globally. However, a significant amount of revenue was generated from lending a very concentrated number of securities. Beneficial owners lending those ‘hot’ securities likely will have experienced a more positive 2019.”

The top five revenue-generating securities in the global lending market for 2019 included Beyond Meat, Aurora Cannabis, Canopy Growth, NIO and Casino Guichard-Perrachon, which together generated $680 million in lending revenue.

Securities lending revenues are calculated on the amount paid by borrowers – typically broker-dealers on behalf of their hedge fund clients – to temporarily borrow equity and fixed income securities from beneficial owners, such as pension funds.