ISLA Post Trade panel strikes optimistic tone for 2021
30 March 2021
The discussion, held remotely, touched on promising new markets, post-pandemic recoveries, ESG and the role securities lending is playing in both novel and legacy asset manager portfolios
Image: Olga/adobe.stock.com
The International Securities Lending Association鈥檚 (ISLA) 11th Post Trade Conference took place on 16 March and, as with so much else in the current climate, it was a virtual affair.
This year鈥檚 two-day event featured a panel discussion titled Key Business, Trading & Product Drivers Impacting Our Markets, which delved into how, in these exceptional times, key regulatory, economic and political drivers are influencing trading decisions and business development priorities.
Three panellists 鈥 one representing a global investment manager, one the global head of securities lending at a major bank and the last the head of EMEA securities lending at a banking multinational 鈥 joined ISLA CEO Andrew Dyson to take stock of the past year and comparing the motions of the pandemic era markets to where we find ourselves three months into 2021.
One panellist started off on a high note. 鈥淭he positive resilience shown by the securities lending industry deserves a shout out,鈥 and despite the storm of March and April last year, 鈥渇rom our perspective, our volumes were up to more than double to the month of March鈥.
Leading on from that, 鈥渨e鈥檝e seen client and investment behaviour change substantially,鈥 they said. There鈥檚 been a search for yield, some markets have recovered quicker than others and many portfolios have switched to emerging markets. 鈥淲e鈥檝e seen a trend towards a heavier emerging markets lean from a securities lending perspective,鈥 he added.
As we move further into the year, they said corporate activity has been 鈥渧ery positive鈥 and revenues have been up for beneficial owners. New markets and new opportunities represent 鈥渘ew frontiers鈥 鈥 in Middle Eastern markets and Asia Pacific, investments have seen an increase.
Ultimately, as investments have moved forward and transitioned into these new markets, securities lending has continued to be a 鈥渂ig focus鈥 as regulators and local market exchanges have been 鈥渧ery open and very positive鈥 with respect to securities lending.
The first panellist said that as an asset owner and asset manager, they were able to see market dynamics 鈥渢hrough two very distinct lenses鈥. On the asset manager side, despite an 鈥渋nteresting year鈥, one of the 鈥減ositive behaviours鈥 coming to the fore was 鈥渁 new generation of fund managers鈥 that use securities lending as a portfolio management tool to enhance customer outcomes.
There is a 鈥渘ew breed鈥 of asset managers, they said, who are launching new portfolios that consider securities lending 鈥渇rom the get go鈥 and see it as a 鈥渧ery powerful option鈥, asking themselves what does the lending framework look like from day one?
And then there鈥檚 legacy portfolios, which in the past may not have engaged with securities lending, but, they added, are now 鈥渃arefully reconsidering鈥 it in order to enhance their customer outcomes. All of this is 鈥渧ery exciting,鈥 they said.
Continuing the optimism, they said that 鈥渋f you compare broader markets in 2021 to 2020, notwithstanding the volatility of March and April, markets feel optimistic, less fragile and have more substance鈥.
The third panellist concurred with this sunny optimism, framing it as a 鈥済lobal view鈥 and commenting that these 鈥減ositive sentiments鈥 are coming through largely on the long-side of portfolios rather than the short-side.
They went on to say that although Europe has had a challenging start to the year, it鈥檚 鈥渘othing compared to March and April 2020鈥. Other reasons to be cheerful include plenty of corporate activity taking place, plenty of corporate restructuring, dividends are being paid again and appetite for investment is high.
On which region of the world has done the best over the past 12 months and looks set to capitalise on that success, one panellist was unequivocal; the US. 鈥淭he SPAC phenomenon has been really helpful鈥 in that regard, they said.
Two panelists specifically highlighted China as a market with great potential in the medium term.
鈥淎sia has really been an area of growth with China opening up,鈥 one panelist said.
On the subject of new frontiers, another speaker noted that, 鈥渓ooking internally鈥, their firm is 鈥渧ery much in favour鈥 of the broader role securities lending can play in market liquidity and price discovery.
Looking forward, there are two 鈥渒ey themes that will form the heart of our agenda in 2021,鈥 they said. The first is the role of securities lending in supporting broader Environmental, Social, and Corporate Governance (ESG) growth. The second, 鈥渉ow we can promote diversity and inclusion, both at industry and the business level鈥.
Capitalising on that segue, Dyson asked the panel just how important the ESG agenda really is. In response, one panellist said that, ultimately, in the context of changing portfolio dynamics, 鈥渢here is a general acknowledgment that our investment behaviours have a positive or negative impact on the world,鈥 and you would therefore expect investment behaviour to change.
On just what ESG means to investors, they said that on an environmental basis, 鈥渨e have a clear lens what ESG means, there鈥檚 a lot of synergy鈥, and to a lesser extent it鈥檚 the same for the social aspects of investments.
But in terms of governance, 鈥渋t means different things for different people鈥. Asset owners in different regions will consider what is socially acceptable and what constitutes governance standards in different ways, he added.
As securities lending is a 鈥渂ig part of the governance conversation鈥, it is incumbent on managers and asset owners to ensure they are optimising performance and capturing opportunities.
鈥淭here is a need for an industry review, for a baseline or some kind of consistency for ESG,鈥 they noted. 鈥淔rom our perspective, we鈥檙e very keen to ensure all investment habits align with ESG,鈥 and with its impacts on reporting, collateral behaviours, investment habits, it鈥檚 important to 鈥渉ave the tools in place鈥.
Another speaker echoed many of the ESG sentiments, stating that ESG is 鈥渇ront and centre鈥 at their firm. 鈥淚t鈥檚 the buzzword that鈥檚 out there at the moment,鈥 and conversations with supply-side feature it predominantly.
鈥淭here is a significant need for transparency,鈥 they mused. 鈥淕iven this phenomenon is here to stay,鈥 and people will always have a desire to do more with their assets, and securities lending can coexist with that desire, 鈥測ou need to know what liquidity you are taking down and what the stability of that liquidity is going to be like鈥.
They concluded that once we have that much-needed transparency, 鈥渋t鈥檚 simply a pricing conversation, and I don鈥檛 think it鈥檚 a huge leap to get that incremental transparency that we need鈥.
This year鈥檚 two-day event featured a panel discussion titled Key Business, Trading & Product Drivers Impacting Our Markets, which delved into how, in these exceptional times, key regulatory, economic and political drivers are influencing trading decisions and business development priorities.
Three panellists 鈥 one representing a global investment manager, one the global head of securities lending at a major bank and the last the head of EMEA securities lending at a banking multinational 鈥 joined ISLA CEO Andrew Dyson to take stock of the past year and comparing the motions of the pandemic era markets to where we find ourselves three months into 2021.
One panellist started off on a high note. 鈥淭he positive resilience shown by the securities lending industry deserves a shout out,鈥 and despite the storm of March and April last year, 鈥渇rom our perspective, our volumes were up to more than double to the month of March鈥.
Leading on from that, 鈥渨e鈥檝e seen client and investment behaviour change substantially,鈥 they said. There鈥檚 been a search for yield, some markets have recovered quicker than others and many portfolios have switched to emerging markets. 鈥淲e鈥檝e seen a trend towards a heavier emerging markets lean from a securities lending perspective,鈥 he added.
As we move further into the year, they said corporate activity has been 鈥渧ery positive鈥 and revenues have been up for beneficial owners. New markets and new opportunities represent 鈥渘ew frontiers鈥 鈥 in Middle Eastern markets and Asia Pacific, investments have seen an increase.
Ultimately, as investments have moved forward and transitioned into these new markets, securities lending has continued to be a 鈥渂ig focus鈥 as regulators and local market exchanges have been 鈥渧ery open and very positive鈥 with respect to securities lending.
The first panellist said that as an asset owner and asset manager, they were able to see market dynamics 鈥渢hrough two very distinct lenses鈥. On the asset manager side, despite an 鈥渋nteresting year鈥, one of the 鈥減ositive behaviours鈥 coming to the fore was 鈥渁 new generation of fund managers鈥 that use securities lending as a portfolio management tool to enhance customer outcomes.
There is a 鈥渘ew breed鈥 of asset managers, they said, who are launching new portfolios that consider securities lending 鈥渇rom the get go鈥 and see it as a 鈥渧ery powerful option鈥, asking themselves what does the lending framework look like from day one?
And then there鈥檚 legacy portfolios, which in the past may not have engaged with securities lending, but, they added, are now 鈥渃arefully reconsidering鈥 it in order to enhance their customer outcomes. All of this is 鈥渧ery exciting,鈥 they said.
Continuing the optimism, they said that 鈥渋f you compare broader markets in 2021 to 2020, notwithstanding the volatility of March and April, markets feel optimistic, less fragile and have more substance鈥.
The third panellist concurred with this sunny optimism, framing it as a 鈥済lobal view鈥 and commenting that these 鈥減ositive sentiments鈥 are coming through largely on the long-side of portfolios rather than the short-side.
They went on to say that although Europe has had a challenging start to the year, it鈥檚 鈥渘othing compared to March and April 2020鈥. Other reasons to be cheerful include plenty of corporate activity taking place, plenty of corporate restructuring, dividends are being paid again and appetite for investment is high.
On which region of the world has done the best over the past 12 months and looks set to capitalise on that success, one panellist was unequivocal; the US. 鈥淭he SPAC phenomenon has been really helpful鈥 in that regard, they said.
Two panelists specifically highlighted China as a market with great potential in the medium term.
鈥淎sia has really been an area of growth with China opening up,鈥 one panelist said.
On the subject of new frontiers, another speaker noted that, 鈥渓ooking internally鈥, their firm is 鈥渧ery much in favour鈥 of the broader role securities lending can play in market liquidity and price discovery.
Looking forward, there are two 鈥渒ey themes that will form the heart of our agenda in 2021,鈥 they said. The first is the role of securities lending in supporting broader Environmental, Social, and Corporate Governance (ESG) growth. The second, 鈥渉ow we can promote diversity and inclusion, both at industry and the business level鈥.
Capitalising on that segue, Dyson asked the panel just how important the ESG agenda really is. In response, one panellist said that, ultimately, in the context of changing portfolio dynamics, 鈥渢here is a general acknowledgment that our investment behaviours have a positive or negative impact on the world,鈥 and you would therefore expect investment behaviour to change.
On just what ESG means to investors, they said that on an environmental basis, 鈥渨e have a clear lens what ESG means, there鈥檚 a lot of synergy鈥, and to a lesser extent it鈥檚 the same for the social aspects of investments.
But in terms of governance, 鈥渋t means different things for different people鈥. Asset owners in different regions will consider what is socially acceptable and what constitutes governance standards in different ways, he added.
As securities lending is a 鈥渂ig part of the governance conversation鈥, it is incumbent on managers and asset owners to ensure they are optimising performance and capturing opportunities.
鈥淭here is a need for an industry review, for a baseline or some kind of consistency for ESG,鈥 they noted. 鈥淔rom our perspective, we鈥檙e very keen to ensure all investment habits align with ESG,鈥 and with its impacts on reporting, collateral behaviours, investment habits, it鈥檚 important to 鈥渉ave the tools in place鈥.
Another speaker echoed many of the ESG sentiments, stating that ESG is 鈥渇ront and centre鈥 at their firm. 鈥淚t鈥檚 the buzzword that鈥檚 out there at the moment,鈥 and conversations with supply-side feature it predominantly.
鈥淭here is a significant need for transparency,鈥 they mused. 鈥淕iven this phenomenon is here to stay,鈥 and people will always have a desire to do more with their assets, and securities lending can coexist with that desire, 鈥測ou need to know what liquidity you are taking down and what the stability of that liquidity is going to be like鈥.
They concluded that once we have that much-needed transparency, 鈥渋t鈥檚 simply a pricing conversation, and I don鈥檛 think it鈥檚 a huge leap to get that incremental transparency that we need鈥.
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