2012 Top International Operations Executives
2012 TOP INTERNATIONAL OPERATIONS EXECUTIVES:
The More Things Change, The More They Stand Out | DIANA CHAN: Shaking Things Up, In European Clearing | CHRIS REMONDI: Increasing Information, Reducing Risk | NEERAJ SAHAI: Marrying Large-Scale Technology With Boutique Service | KEVIN MILNE: Making an Exchange Succeed By Working With Rivals | THOMAS ZEEB: Gold Standard in Securities Processing | CHRISTOPHER JAYNES: Cutting Out the Custodian Bank | PATRICK COLLE: Going Global, But Not Everywhere | TONY FREEMAN: Targeting Two-Day Settlement
CHRISTOPHER JAYNES: Cutting Out the Custodian Bank
December 20, 2011
If a fund manager could eliminate the custodian bank as agent when it lends securities to a broker overnight, would it earn more?
That was a pretty bold question back in 2000. At that time, pension and other plan sponsors simply relied on their fund managers to, in turn, depend on their custodian banks to lend their securities to borrowers. That is to say, brokers dealers. The presumption was that their custodian banks would get them the highest return for those assets.
But for several securities lending executives at an investment management firm, something just didn’t seem right.
“When we were trying to establish a securities lending program for portfolios managed by United Asset Management, we determined that securities lending should be treated as an investment management and trading discipline rather than an operational function as it was viewed at the time,” says Chris Jaynes, who was then senior vice president of that fund manager’s global securities lending unit and is now head of eSecLending, a startup in electronic services for securities lending.
According to Jaynes, many concepts common in the investment management industry were largely absent in the securities lending market. Those were best execution, performance measurement, competition, use of multiple managers and benchmarking. Plan sponsors—the owners of the assets—were simply taking the word of fund managers and custodian banks they were getting the best returns for their assets. Among the largest lending agents are State Street; JP Morgan, Northern Trust and Bank of New York Mellon.
“We discovered there was there was little information on just how well existing providers were performing,” recalls Jaynes who also served as vice president and compliance officer for UAM Trust Company, a subsidiary of United Asset Management.
Jaynes’ various roles at UAM Trust Company gave him a pretty good understanding of what plan sponsors really needed – and were lacking. While at UAM Trust Company, he was part of a group in charge of designing securities lending programs for plan sponsor clients. Jaynes’ and his colleagues’ answer: help create a new firm called eSec Lending that could provide plan sponsors with a lot more say in how their assets are lent than through traditional custodial programs.
eSecLending, which acts as an online securities lending agent and features a proprietary auction process in which the plan sponsor has the ultimate control over just who borrows its assets, what amount of assets and for how much.
Old Mutual, a London and Johannesburg insurance and asset management firm which purchased UAM in 2000 provided an undisclosed amount of seed money. The California Public Employees’ Retirement System (CalPERS), the largest pension plan in the U.S., agreed to become eSecLending’s first client that same year.