Optimising performance and boosting returns

With asset owners and managers at a turning point in how they manage their portfolios, this paper looks at strategic and tactical approaches that will drive investment success in 2021 and beyond. 

2020 sharpened the focus on challenges investors faced in the preceding year – from how to generate target risk-adjusted returns against a lower-for-longer rates backdrop, to dealing with ongoing cost and fee pressures amid ever-tightening margins.

Pressure is on for buy-side institutions to make strategic shifts to improve portfolio performance, manage costs and ensure sufficient liquidity.

The following five strategic and tactical approaches can help investors in Asia Pacific can achieve optimisation:

  • Additional alpha – via better use of under-utilised assets
  • A single optimisation lens –to manage inventory and collateral across multiple uses
  • Regulatory compliance – ensuring the right type of collateral to support portfolio management
  • Meaningful data – facilitating more effective investment decisions
  • Resources and expertise – enabling the infrastructure and/or coordination for superior portfolio performance

At a tipping point

Poor utilisation of assets is usually a result of siloed existence of investment planning and portfolio management functions. COVID-19 brought this inadequacy into sharp focus especially during March 2020 when volatility highlighted the need to find liquidity and collateral solutions efficiently.

As investors look for ways to acquire the desired risk-adjusted returns for their portfolios, a considered securities lending programme offers consistent returns, full collateralisation plus a margin and indemnity from the custodian to substantially mitigate the risk.

Accelerating Asia Pacific’s lending landscape – 2021 and beyond

Asia Pacific’s accelerated adoption of more comprehensive securities finance solutions, ahead of other regions globally, is driven by

  • anticipated quicker economic recovery from the pandemic;
  • new impetuses such as regulator support, inherent depth in market funding and need for liquidity; and
  • the increased appetite for Asia Pacific equities.

Laying new foundations: a strategic role for securities finance

The evolution of the securities lending business into a broader securities finance offering offers asset owners and managers the potential for additional economic value from securities lending and complementary financing solutions in enhancing portfolio performance.

The following presents the opportunity to optimise invested assets through multiple channels:

  • Agency lending with traditional and non-traditional borrowers
  • Financing and liquidity (sponsored repo, agency repo, bilateral repo, cash collateral self-investment)
  • Peer-to-peer lending and borrowing
  • Principal lending
  • Borrowing from an agent, the street or themselves
  • Collateral management

A deliberate tilt via an interconnected set of differentiated and complementary solutions may incrementally add alpha and manage costs more efficiently.

The relentless tide of disintermediation and the increasing demand for flexibility throughout the value chain tempered by risk management and flexible indemnification continue to shape this trend.

Ultimately, the market in Asia Pacific is at a turning point. There is greater recognition than ever before of the need to add the kind of value to a portfolio that a broader securities finance offering promises.


Read the full paper here.

Northern Trust Disclaimer: This material is directed to professional clients only and is not intended for retail clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. 



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