French Fund Promotes Asset Allocator to CIO

(May 22, 2012) — The French reserve pension fund has promoted an asset allocation specialist to CIO after the departure of its previous head two months ago.

Salwa Boussoukaya-Nasr has taken over the chief investment role, at the Fonds de Réserve pour les Retraites (FRR), according to her LinkedIn profile and reports in the French Press this week.

Boussoukaya-Nasr replaces Philippe Aurain, who had been CIO at the since April 2010 until joining third party fund manager Fédéris Gestion d’Actifs, as CIO and Chief Executive earlier this year.

She joined the €35 billion fund in August 2006 to lead its asset allocation team, after spending just over a year as a total return fund manager at Ixis Asset Management – now part of the Natixis Group.

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Previously she had been an asset allocation portfolio manager at Lazard Freres Gestion, according to her LinkedIn profile.

In March, the FRR reported that it had assets of €35.1 billion at the end of December, having made a return of 0.37% against a backdrop of Eurozone economic tension.

In November 2010, the FRR underwent huge change as the French government passed a law transferring the entire asset portfolio to Cades, the state’s social debt fund. The FRR became a third-party manager to its own assets and reduced its risk appetite. It agreed to pay €2 billion a year to Cades, and wind down between 2018 and 2024.

Is This How Securities Lending Wins Back Investors?

The market events of 2008 and 2009 has caused many institutional investors to reexamine their securities lending programs, according to eSecLending, which recently established an industry working group to release guidance on best practices.

(May 21, 2012) — eSecLending has released a list of best practices for the securities lending industry, which suffered a blow to its reputation in the aftermath of the financial crisis of 2008.

With the balance of securities on loan at the end of January exceeding $1.8 trillion globally, securities lending — a collateralized transaction that takes place between two institutions — has evolved from what 20 years ago. The practice has evolved from a back office, operational function to an investment management and trading function worthy of greater focus and attention, eSecLending said in a paper this week.

However, the market events of 2008 and 2009 created an array of challenges that affected all short term cash markets including most cash collateral pools, the paper said. “The default of Lehman Brothers tested the unwinding procedures of the lending and collateralization processes at agent and principal lenders alike.”

“In 2007 and 2008, people realized that there was an aspect of securities lending that they hadn’t looked at before, which really brought liquidity risk to the forefront,” Paul Sachs of Mercer added at an industry conference in New York last week, noting that despite the hardships securities lending has endured, it is a vital function of capital markets that will not go away anytime soon.

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The following is a sample list of industry best practices when it comes to securities lending, as outlined in the paper.

1) Lenders should ensure that the person responsible for corporate governance is part of the securities lending oversight group internally.

2) It is important to understand what is driving the demand for the lenders’ securities. Lenders should be receiving market color that discusses the strategies and interest for individual securities and asset classes.

3) In considering the route to market, the lender should ensure it understands the fee implications. For example, in a custodian program the custodian typically covers the fees associated with the security movements, how will this work in a third party program?

4) Lenders should ensure that their agent understands the lender’s preferences regarding proxy voting and security restrictions.

5) If there is one essential area of due diligence, the collateral management process is it. Understanding how an agent collateralizes loans, what happens operationally to ensure loans are not released before collateral is received, and how exceptions are reported is critical to a sound securities lending program.

According to the paper, short sale bans and negative press added to the negativity around securities lending products, with an increased focus being centered on the investment management and risk management practices of lending programs.

“The practice improves overall market efficiency and liquidity, provides a critical element for hedging, acts as a useful tool for risk management for trading and investment strategies, and helps to facilitate timely settlement of securities,” the paper said.

Read the full paper on securities lending chaired by eSecLending here.