CalPERS, the $160bn California Public Employees’ Retirement System – one of the world’s largest pension funds – has announced that it has joined forces with South Africa’s Old Mutual, the new owner of United Asset Management (UAM), to establish eSecLending, LLC, a new firm offering a web-based auction system for securities lending. The new process is designed to meet the needs of large pension funds, mutual funds and other major investors including online custodians in obtaining lower prices and improved performance.
CalPERS believes the new process can nearly double the annual return it has previously earned from its stock lending program. ESecLending’s auction system will bring together lenders, borrowers and brokers on the web, allowing price discovery by utilising a multiple-stage bidding process and packaged securities for lending. The data collected on securities lending performance will be used for a benchmarking system.
“Securities lending currently takes place in a very inefficient marketplace,” says Ty Danco, president of eSecLending. The auction system is said to be the first in the US, and should provide a more transparent securities lending environment in the growing market. The size of the market is estimated at US$1.5–2trn (e1.7–2.3trn) worldwide.