Deadline looms to claim LACERA lending mandate
23 August 2019 Los Angeles
Image: Shutterstock
The deadline for agent lenders and custodians to manage the lending programme of America’s biggest county retirement system is weeks away.
The Los Angeles County Employees Retirement Association (LACERA) is encouraging new suiters to apply for the chance to manage its securities lending programme ahead of predictions that its lendable asset pool is set to more than double.
The fund will begin reviewing applications in September with the semi-finalists to be announced in October. The mandate winner(s) will be chosen by February 2020.
LACERA, which has operated a securities lending programme for more than 20 years, instigated a ‘request for proposal’ to custodians and lending agents for it entire portfolio in June to review its overall programme design and compare its current service providers with the competition.
In the minutes from its July meeting, the fund’s board noted that “such a review is timely because the current lendable asset size could potentially double as LACERA’s global equity portfolio moves from commingled fund structures to separately managed accounts custodied at State Street”.
LACERA’s total lendable base was approximately $9.3 billion, as of April, but it is anticipated to balloon by approximately $14.5 billion once global equity-indexed assets transition from commingled funds to separate accounts.
By asset category, the lending pool is made up of domestic equity ($3.2 billion), corporate bonds ($3.6 billion), international equities ($1.2 billion), US treasuries ($1.1 billion) and US agency securities ($200 million).
LACERA’s securities lending programme is managed by State Street Bank and Trust, which acts as a custodian, while Goldman Sachs Agency Lending (GSLA) is the current lending agent. Both are able to re-bid for the mandate.
State Street Bank and Trust lends LACERA’s non-US equities, US treasury and US agency securities. GSAL lends LACERA’s US equities and corporate bonds. Both offer indemnifications to mitigate borrower defaults.
Collateralisation is set on non-US loans at 105 percent and on US loans at 102 percent of the market value of securities on loan.
State Street Global Advisors invests the collateral received from both lending programmes in short-term highly liquid instruments.
LACERA’s 2018 financial report outlines that its gross securities lending income for the year was $18.8 million, compared to $11.6 million in 2017. However, its income, net of expenses, was $5.7 million in 2018, down from $6.4 million the year before.
The revenue difference was mostly caused by a significant uptick in borrower rebates from 2017 to 2018, which increased from $3.7 million to $11.8 million.
Minimum qualifications required:
In order to be eligible for the mandate, the fund’s board has stated that securities lending providers must meet the following criteria:
1. A minimum 15-year track record performing the duties of a custodial lending agent, third-party lending agent, or principal borrower, serving public pension plan clients as of 30 June 2019;
2. A minimum average daily loan value of at least $30 billion for each of the past five years ended 30 June 2019; and
3. Must offer both lending and collateral investment services. The collateral investment must be in a separate account.
The Los Angeles County Employees Retirement Association (LACERA) is encouraging new suiters to apply for the chance to manage its securities lending programme ahead of predictions that its lendable asset pool is set to more than double.
The fund will begin reviewing applications in September with the semi-finalists to be announced in October. The mandate winner(s) will be chosen by February 2020.
LACERA, which has operated a securities lending programme for more than 20 years, instigated a ‘request for proposal’ to custodians and lending agents for it entire portfolio in June to review its overall programme design and compare its current service providers with the competition.
In the minutes from its July meeting, the fund’s board noted that “such a review is timely because the current lendable asset size could potentially double as LACERA’s global equity portfolio moves from commingled fund structures to separately managed accounts custodied at State Street”.
LACERA’s total lendable base was approximately $9.3 billion, as of April, but it is anticipated to balloon by approximately $14.5 billion once global equity-indexed assets transition from commingled funds to separate accounts.
By asset category, the lending pool is made up of domestic equity ($3.2 billion), corporate bonds ($3.6 billion), international equities ($1.2 billion), US treasuries ($1.1 billion) and US agency securities ($200 million).
LACERA’s securities lending programme is managed by State Street Bank and Trust, which acts as a custodian, while Goldman Sachs Agency Lending (GSLA) is the current lending agent. Both are able to re-bid for the mandate.
State Street Bank and Trust lends LACERA’s non-US equities, US treasury and US agency securities. GSAL lends LACERA’s US equities and corporate bonds. Both offer indemnifications to mitigate borrower defaults.
Collateralisation is set on non-US loans at 105 percent and on US loans at 102 percent of the market value of securities on loan.
State Street Global Advisors invests the collateral received from both lending programmes in short-term highly liquid instruments.
LACERA’s 2018 financial report outlines that its gross securities lending income for the year was $18.8 million, compared to $11.6 million in 2017. However, its income, net of expenses, was $5.7 million in 2018, down from $6.4 million the year before.
The revenue difference was mostly caused by a significant uptick in borrower rebates from 2017 to 2018, which increased from $3.7 million to $11.8 million.
Minimum qualifications required:
In order to be eligible for the mandate, the fund’s board has stated that securities lending providers must meet the following criteria:
1. A minimum 15-year track record performing the duties of a custodial lending agent, third-party lending agent, or principal borrower, serving public pension plan clients as of 30 June 2019;
2. A minimum average daily loan value of at least $30 billion for each of the past five years ended 30 June 2019; and
3. Must offer both lending and collateral investment services. The collateral investment must be in a separate account.
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