Global custodian State Street has followed up its longstanding rejection of a benchmarking ap-proach to performance measurement in securities lending by introducing a risk-adjusted measurement process for loaned portfolios.

It claims this is the first time such a service has been provided to clients to measure the risk/return relationship in a lending programme.By treating securities lending as an integral part of portfolio management, the bank has brought the assessment of risk-adjusted performance at all stages of the transactions.

The calculations are done for both the loan and reinvestment portfolios, as well as working out any correlation between them.The 'SL Performance-Analyzer' service takes a statistically-based value at risk approach to measuring risk in portfolios being lent. State Street says that the VAR method can give an estimate of the largest gain or loss that a portfolio of securities is likely to experience within a defined time horizon and at a given confidence level". It is by measuring risk-adjusted returns at portfolio level, that lenders can "gain true measure of relative performance". Ralph Vitale, who heads up global securities lending in Boston, says: "We should use the same tools to measure our performance that are used in other forms of investment management." The service is being introduced to existing clients. Fennell Betson"