Basic HTML Version
24
|
Opportunities and Challenges for Hedge Funds in the Coming Era of Optimization
Chart 16 shows the actual value of equities on loan
between 2008 and 2013. As shown, the value of
equities on loan has grown 26% since the crisis, rising
from $483 billion at the end of 2008 to $608 billion
at the end of Q2 2014 according to Markit. Indeed, the
amount of equities on loan at the end of Q2 2014 was
30% higher than the lows of $469 billion noted at the
end of 2012.
This contrasts sharply to what has occurred in the
bond market. Chart 17 shows the value of bonds on
loan in the corresponding period between 2008 and
2013. No appreciable growth in these figures has
been noted in the years post-GFC. At the end of 2008,
there were $984 billion in bond assets on loan (across
both corporate bonds and government bonds). By
the end of Q2 2014, the amount of bonds on loan was
down 1% at only $974 billion.
The result of these changes is that by the end of
Q2 2014, the value of bonds on loan ($974 billion)
was only 1.6x the value of equities on loan ($608
billion). This contrasts with the situation at the end
of 2008 when the value of bonds on loan ($984
billion) was double (2.0x) the value of equities on loan
($483 billion).
Regional Equity Lending Supplies Show
Wide Variance in Spread
A look within the broad equity numbers shows a
great deal of regional variance. Chart 18 shows the
breakdown of equity lendable assets by region. To
get the degree of granularity we desired, we will look
at Markit’s figures as of Q1 2014. These figures put
lendable equity assets at $8.9 trillion.
As shown in Chart 18, the bulk of the world’s lendable
assets, $5.7 trillion (64%), are located in North
America, with the U.S. dominating that region with
$5.3 trillion (92%) and Canadian equities making
up the remainder of the pool. European equities
represent the next largest supply with $2.1 trillion
(24%) of which the Western European nations of the
United Kingdom, Germany and France dominate with
$1.5 trillion (72%). The remaining European lendable
equity assets are split between the Nordic & Benelux
countries (19%) that include Norway, Finland, Sweden,
Denmark, Netherlands and Belgium and the Southern
European countries (10%) that include Greece, Italy,
Portugal and Spain. Asian lendable equities make up
only 12% of the world supply, with Japan registering
the largest share at 43% at $458 billion followed
by Other Asia at $396 billion (37%) that includes
Western Europe includes: Germany, France & UK. Nordic & Benelux includes Norway, Finland, Sweden, Denmark, Netherlands and Belgium.
Southern Europe includes: Greece, Italy, Portugal and Spain. Other Asia includes Australia, South Korea, Taiwan and Singapore.
Source: Markit
Chart 18: Location of Lendable Equity Assets by Region: Q1 2014
Lendable Equity
Supply $8.9 T
Europe: $2.1 Trillion
NAM: $1.1 Trillion
NAM: $5.7 Trillion
Western Europe
$1.5T
–
71%
Southern Europe
10%
Nordic &
Benelux
19%
NAM
$5.7T – 64%
Europe
$2.1T – 24%
Asia
$1.1T – 12%
Hong Kong
21%
Japan
43%
Other
Asia
37%
United States
$5.3T – 92%
Canada
8%
“ We have a high value, low volume program with equities
only. Bonds don’t really have much of a value in lending
and thus require high volumes to make them worthwhile,”
— Asset Owner—Institution