(January 8, 2013) – Dow Chemical has appointed eSecLending to shepherd its return into the securities lending space, after spending years on the sidelines post-2008.
The deal culminates a few years of talks between Dow’s Chief Investment Officer Gary McGuire and eSecLending, according to Peter Bassler, a managing director at the lending agent.
McGuire is renowned as a highly technical and finance-savvy player in corporate pensions—one sector which has been particularly cautious of securities lending since the financial crisis.
For eSecLending, winner of this year’s aiCIO’s Industry Innovation Award for Securities Lending, the Dow Chemical deal marks a major success in reinvigorating its potential client base.
“Funds saw what happened in the credit crisis,” Bassler, the managing director, explained to aiCIO. “Securities lending was an area that many corporate pensions participated in and many experienced challenges on cash collateral reinvestment side of the business. These issues surprised a lot of people and it has taken time for people to want to participate again. Programs today are executed with many more restrictions to mitigate risk.”
McGuire, who previously led Dow’s global risk management division, has a reputations as a technical CIO who is savvy with financial instruments. Dow’s $16.1 billion pension fund holds nearly 20% of its assets in alternatives, and McGuire leans heavily on derivatives and interest rate hedging with put and call options. “I’m focused on finding a diversified and uncorrelated return space,” he said during his interview for the Power 100. “I would summarize my approach as putting convexity into our portfolio, both on the upside and downside.”
With interest rates at historical lows and no rise on the horizon, CIOs are looking to lending to boost their bottom line, according to aiCIO’s 2012 securities lending survey. But Bassler says it’s not the same lending it was pre-2008, particularly in the corporate space, and that’s a good thing–at least for eSecLending.
“It’s good to see someone at the CIO level looking at securities lending as a means of making money and generating alpha,” he said. “The fact that the CIO is involved is significant. Funds are saying, ‘Here are our concerns around securities lending: how can you address them?’ And we make sure we structure a lending program around those specific concerns. Concerns are generally around the key risks such as collateral and counterparty risk. It’s not a back-office custodial product anymore.”
Related Survey: 2012 Securities Lending Survey