Marney, congratulations on your role at Fidelity. How do you plan to shape the firm? What lessons will you bring to Fidelity and its clients that you have learnt from your time in the industry?
Thank you. I am thrilled to be joining such an incredible team and reputable firm, and equally excited about the opportunity that lies ahead for Fidelity Agency Lending. Having spent more than 20 years in the financial services industry, and the last 16 years in various market-facing roles in agency lending, I have gained a strong understanding of what institutional clients need to manage a successful securities lending programme.
Clients are looking for a provider that understands their specific requirements and ultimate goals. They need an agent that can meet their needs for data, oversight and execution, and utilise technology for efficiency and ease of business. In my position, I will incorporate the depth of the Fidelity offering and tech-driven platform to deliver a consistent experience throughout the life of the relationship — starting at the initial point of onboarding. Relationship management works closely with each client to establish a programme that is transparent and continues to operate the way it was intended, while remaining aligned with their business goals.
Lender behaviour is evolving at a rapid pace, and I plan to be the clients’ voice at Fidelity as we continue to develop a comprehensive roadmap and investment in our programme offering.
How is relationship management changing in the securities lending space? What is Fidelity doing to support client requirements?
Securities lending has become increasingly relevant as the competitive landscape intensifies. Regulatory changes, low organic asset growth, continued fee compression, and increased pressure to optimise operating models are persistent challenges for many asset managers and institutional clients. We are experiencing an increase in inquiries and expect request-for-proposal (RFP) activity to grow as asset managers explore different ways to gain alpha and optimise shareholder value. Clients are feeling the downstream result of regulation, which is impacting their programme performance. Fidelity is in the position of not having to manage our book around capital restraints.
Typically, we see managers applying less than one FTE to the oversight of a securities lending programme, which makes it increasingly important that the agent can be an extension of their efforts. This is where relationship management and a comprehensive “know your client” strategy has become increasingly important. Fidelity’s platform allows the relationship manager to have direct access to real-time data, resulting in intraday oversight and better solutioning.
Additionally, as lendable supply increases at a quicker rate than demand, clients are putting more emphasis on loan execution, overall performance and operational stability. At Fidelity, we are using data and advanced technology to increase connectivity and relevance with our trading counterparties, which is resulting in better performance, transparency and efficiencies for our clients.
What are beneficial owners looking for in an agent lending provider to help them deliver and meet their securities lending goals?
Beneficial owners are looking for an agent lending provider that can keep pace with the evolving industry. At Fidelity, constant and consistent investment in our programme remains a primary focus and, to date, we have addressed many industry challenges through scalable and innovative development. One example of this is a benchmarking tool that was recently added to PB Optimize that not only looks at performance, but can measure the capabilities of multiple agents, giving the lender the power of more informed decision-making and control over their lendable assets.
PB Optimize is our comprehensive fintech solution for portfolio management that can help maximise revenue with market insights, and real-time aggregated data and analytics. It has become clear that better, more advanced technology can help address change in a swift and scalable way, while also mitigating the potential risks to lenders and not compromising the overall performance of a securities lending programme.
How important is performance benchmarking in securities lending and how is this evolving as a discipline?
Performance benchmarking is one attribute of measurement of a securities lending programme and is important to make sure that an agent lending provider is meeting its revenue expectations. Historically, we have seen beneficial owners rely on their providers to perform benchmarking. However, in more recent years, we are seeing lenders looking for an independent source to provide this analysis (at an additional expense). Fidelity is responding to the need for lenders to have greater insight into the performance of a securities lending programme and the market dynamics that are driving returns. With the use of proprietary technology, Fidelity is building solutions that can give lenders the information they need without adding extra costs and resources to their oversight model.
Clients have a fiduciary responsibility to their shareholders to ensure that the securities lending programme is aligned to the goals of the firm, and meeting performance expectations and regulatory guidelines. In addition to performance benchmarking, we encourage our clients to benchmark their providers based on service, product knowledge, investment roadmap and overall management of their programmes. Annual due diligence reviews of the business, understanding how investments are driving programme attributes, and daily transparency into the controls that drive a programme are all key to the overall performance of a client’s programme.
From Fidelity Prime Services to Fidelity Agency Lending, where are you focusing your resources to deliver enhanced services to your clients for 2023?
Today, we provide a wide array of products and services to serve and support institutional clients. With our prime brokerage services, institutional clients can access unique inventory via Fidelity’s businesses and institutional relationships, leverage our advanced platform technology and have access to PB Optimize. Our custody and clearing clients have access to our fully-paid securities lending programme for the opportunity to earn incremental income on portfolios. We also have Fidelity Agency Lending — a customisable, technology-driven securities lending programme that helps asset managers, hedge fund managers and other institutional clients to optimise performance for a competitive edge.
In 2023 and beyond, a commitment to innovation and to meeting the needs of institutional clients are at the forefront of our goals. We will continue to enhance the multi-agent benchmarking tool, build out compliance oversight tools, and create exception reporting and alerts. We will also leverage PB Optimize to empower our clients with market data, programme transparency and market-leading performance.
We are in growth mode. Therefore, we will continue to focus on efficient and seamless onboarding. In fact, we just onboarded our first non-affiliate client and will onboard two others in the first half of 2023.
How is technology disrupting the securities finance industry and how is this changing the way that Fidelity is engaging with the market?
Newer technologies, increased automation and richer data are leading to disruption, opportunity and transparency in the securities finance industry. The ability to lend or access supply via automated processes continues to increase. Personnel who work in middle- and back-office positions require increased real-time information to scale under increased volumes. Regulatory changes, such as Securities Financing Transactions Regulation (SFTR), Central Securities Depositories Regulation (CSDR), T+1, and, potentially, 10c-1 may create more of a need for automated, real-time processes to help comply with and meet certain requirements.
Technological innovations can have the most impact and drive change in all aspects of securities finance. In the future, distributed ledger technology may provide additional benefits that we may not fully comprehend yet. These changes may lead to T+0 settlement, 24/7 trading, reduced transaction costs, and a change in the landscape for market participants. It is certainly something we are keeping an eye on. The increased market adoption of newer technologies has reaffirmed Fidelity’s belief that investing in modern technology and newer, more efficient ways of conducting securities lending business will create opportunities for our clients and our securities lending programme.
What can the industry expect from 2023 in terms of opportunities and the changing financial landscape?
There are a few themes that we experienced in 2022 that will carry into 2023. Regulation, in particular the robust US Securities Exchange Commission’s agenda, will continue to be a focal point in the year to come. Fidelity will continue to work with industry groups — such as the Risk Management Association and the International Securities Lending Association — to represent what is in the best interest of the programme and our securities lending clients. Additionally, capital constraints associated with securities lending activity will continue to be a distraction and influence the performance of many lending agents. Fortunately for Fidelity, we do not share these same constraints and will continue to maintain a client-first mentality.
In terms of demand, we expect the market to adjust to the rising interest rate environment of 2022, which will result in increased market engagement, including long and short strategies that promote securities lending demand. We also expect a flurry of corporate action-driven activity and an increase in new issuances after a somewhat muted second half of 2022.
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