A recent Bloomberg article highlighted the strength in long-short fund performance, which can be used as a barometer for the demand to borrow securities. We made some key predictions at the beginning of 2015 which are supported in this article.
Bloomberg published an interesting article, Hedge Fund Woes Can’t Diminish Banner Year for Long-Short Trades, which highlighted the strength in long-short fund performance which can be used as a barometer for the demand to borrow securities. Much of this optimism reflects key predictions we made at the start for the year, which highlighted real signs of a sustained recovery in securities lending demand, especially as it relates to intrinsic value programs. During that time, we highlighted a number of key factors that we believed would result in increasing demand for securities lending including:
- Normalization of the equity markets, particularly in the US
- Increasing corporate confidence in strategic decision making including M&A, capital raising and IPO activity
- The decrease in oil prices, which has a wide ranging effect on key sectors, including solar energy and storage/transportation
- Hedge Fund assets under management are back to pre-crisis levels, with the most growth seen in strategies highly correlated with securities lending demand, such as long-short
As we look forward, we to expect a positive increase in demand, particularly in the US and Asia, due to continued market volatility and divergence in global monetary policy. Conversely, demand to borrow European equities will continue to be dampened by the ECB’s asset purchasing program which is likely to keep equity prices artificially high.
The views expressed are as of December 2, 2015 and are a general guide to the views of BBH. The opinions expressed are a reflection of BBH’s best judgment at the time article was written, and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed. Neither BBH nor its affiliates provide legal or tax advice. Nothing contained herein is intended as a recommendation to buy or sell any security, or to invest in any particular country, sector or asset class. BBH is not affiliated with the Bloomberg.