MUFG Investor Services
Tim Smollen
11 June 2024
Having recently expanded its agency securities lending services for the Japanese market, Tim Smollen, EVP and global head of the GSLS team, speaks with Karl Loomes about the new offering and the significance of the move
Image: Tim Smollen
How would you describe the current securities lending landscape in Japan, and how would you say it compares to its counterpart in Europe, the US, and APAC?
This launch is a significant achievement, as Japanese investment trusts have only used securities lending in a very limited capacity, and we are of course very excited to be able to provide a fully fledged global agency securities lending service for them.
When compared to Europe, the US and APAC, it is fair to say that Japanese clients have traditionally been extremely risk averse. For example, in the past they would only accept limited types of collateral, but that is changing now. Clients are interested in a broader range and type of collateral, exploring different trade types and are showing a willingness to expand their approved counterpart list and also have a keen interest in indemnification. I see a real trend of Japanese clients becoming engaged with their providers, which is always a good thing.
From a lending or financing perspective, it is also important to note that many Japanese clients have been in similar programmes for decades, using financial instruments including repo and collateral swaps as important sources of financing. The concept is not necessarily new, especially for some of the larger banks and insurance companies.
What prompted the decision to make this move, and does it fit in with a broader strategy for MUFG?
We have been working on this for several years. In 2020, MUFG Investor Services decided to enhance our global securities lending capabilities by assembling a new team and investing in new technology. We have been actively involved in securities lending for more than two decades, but primarily focused on regional programmes. Recognising a growing need in our industry, the Global Securities Lending Solutions Group (GSLS) team completely recast our offering by introducing more capabilities for clients, including diverse trade types, collateral options, and indemnification.
After enhancing our capabilities, our team met with many clients, and SBI Asset Management in Japan expressed great interest in our new securities lending opportunities. We will serve as a lending agent for SBI where we will lend their assets wherever the demand exists in the world.
What impact do you see this offering having for your clients?
We believe this is a very significant tool. It empowers asset management firms that cannot provide their own securities lending services, and gives them the opportunity to generate additional revenue for funds and investors. In many ways, this service levels the playing field in Japan by giving those asset managers the same options as other investors who have long participated in securities lending. We are very pleased to have developed a service that can help our clients generate new revenue, and we intend to expand the service to other Japan-domiciled investment trust funds in the future.
What were some of the factors that have hindered investment trusts from participating in securities lending in the past?
Historically, it has been very difficult for Japanese investment trusts to do securities lending. It required significant technology upgrades, as well as additional resources to operate a programme. Japanese investment trusts did not use agent lenders because there are many regulatory points to consider when hiring an external lender. Our GSLS team worked with our clients, along with legal and regulatory experts, to clear those hurdles and create this opportunity.
What does this new offering mean for MUFG Investor Services?
This is another important step in the evolution of MUFG Investor Services. During the past decade, we have invested significantly to expand our global suite of services. MUFG Investor Services recently topped more than US$1 trillion in assets under administration. Because we are a division of MUFG Bank, one of the world’s largest, we offer clients access to a a broad suite of products, including banking, fund finance, FX overlay, custody, and now securities lending. This means we have the ability to support our clients across the entire investment value chain.
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