Kayode Tokede
Following a downward slide of the Nigerian equities market over the last few months, the Managing Director, Vetiva Fund Managers Limited, Mrs. Oyelade Eigbe has emphasised the need for investors to consider securities lending by asset managers in Nigeria as a means of driving their revenue growth.
She made the call during the concluded Securities Lending Forum Webinar organized by NGX, stressing the importance of Exchange Traded Funds (ETFs) and opportunities in securities lending and borrowing.
According to her, “Securities Lending can assist investors with settlement coverage, directional investing, liquidity management and investment strategy deployment, with some key benefits being increased revenue, diversification and investment returns for borrowers among others”. She emphasized the need to ensure thorough documentation because the securities are being loaned.”
As Nigeria’s high-interest rate environment continues to make fixed-income securities more attractive at the expense of equities, she noted that it is important for players to deploy a mix of operational approaches to achieve desired results.
Crunching the numbers, she stated that; “Based on Jun 2022 data from ISLA, globally, pension plans account for about 30 per cent of securities lending transactions, Collective Investment Schemes (CIS), 16 per cent and Government/Sovereign Wealth Fund accounting for about 30per cent.”
She continued by saying; “Speaking of Collective Investment Schemes, Exchange Traded Funds (ETFs) are a good example. Most ETFs are open-ended funds that are listed and traded on an exchange. ETFs track an index or commodity or basket of securities, are passively managed and provides diversification benefits. Going by this, ETFs naturally hold a long positions i.e., buying and holding investments long term; hence the value in adopting securities lending with either the inside lending or outside lending approach.”
She added that, “Each Fund is to be considered individually; its underlying assets, investment objectives, taxation, and other circumstances; and that not all funds engage or should engage in securities lending.
“Where securities lending is possible, investors or beneficial owners should ensure a process that considers or introduces policies that safeguard the beneficial owners, borrowers and at large the market.
“This includes cautious lending policy based on selecting well capitalized borrowers; liquidity and volatility of stock to be lent out and collateral received; collateral quality restrictions; daily re-evaluation of collateral; borrower concentration limits and default indemnification coverage.”
