Securities-backed lending

The superhero solution to your clients’ liquidity needs?

29 September 2020

6 minute read

Global sports organisations don’t just need highly-skilled athletes in the run up to the Olympics. They also need increased cash flow as they wait for sponsorship and other funding.

For this reason, one sporting governing body recently requested an unsecured overdraft via their trading entity to help them manage their finances in the run up to the next Olympic Games. However, after a review that established they held investments in a related trust, Barclays was able to propose a much more efficient solution for the client.

By transferring assets to Barclays, they invested in their flagship discretionary portfolio and accessed securities-backed lending at a very competitive price.  This gave them - and their athletes- the capital they needed to succeed, as they waited for those all-important funds and sponsorship proceeds.

As all Olympians know, uncertainty creates both risk and opportunity. Finding ways to mitigate the former and seize the latter can help strengthen relationships with a wide range of clients and support your fiduciary responsibilities. Syed Raza, Head of Global Banking and Credit Solutions at Barclays Private Bank, explains why securities-backed lending could offer an ideal solution.

What makes securities-backed lending a particularly effective solution during uncertain times?

Syed Raza (SR): Flexibility is essential when you’re operating in volatile times. It’s in these circumstances that clients often come to us with three specific needs. The first is when they have an existing, defined investment strategy, and require liquidity to support their wider business or other interests. Securities-backed lending is a solution that can cater to those needs by providing a liquidity line for those clients wanting quick access to funds to meet external demands.

The second is potential investors who see market volatility as an opportunity. Securities-backed lending can support investors by providing them with the funds to invest and take advantage of the current market conditions.

And thirdly, investors looking to diversify their assets due to concerns over how uncertainty will impact their portfolio. Securities-backed lending can be used as a means of diversifying a portfolio that is too concentrated in the current climate by releasing funding that can be reinvested into other assets.

Have you seen increasing demand for securities-backed lending? If so, what’s driving this?

SR: As securities-backed lending can meet a diverse range of client needs, many of which become more demanding during times of uncertainty, there’s been increased interest in the solution. Generally speaking, client credit needs are far from buoyant at the moment, but appetite for securities-backed lending remains high.

There are several reasons for this. Many private banking clients are heavily invested in cash, which can be a great asset class during volatility. However, the current interest rate versus inflation rate means that a cash-based investment strategy is actually value depleting. For those clients looking for yield, using securities-backed lending to help them invest and diversify their cash holdings can be an attractive option.

Of course, we’re also seeing interest from clients wanting to either use securities-backed lending to invest in current market opportunities or to structurally hedge their existing portfolios. Alongside that, the current unprecedented times means that there’s been increasing interest from clients wishing to leverage funds against their investment portfolio, without disrupting their overall investment strategy, to support their businesses’ liquidity. For those clients whose assets are custodised with us, that’s proved to be an attractive proposition.

How can securities-backed lending solutions support fiduciaries’ client relationships?

SR: Securities-backed lending allows fiduciaries to maintain the assets in the existing structure whilst being able to support a beneficiary’s business interests or meet their clients’ short-term liquidity needs. This can be done while still maintaining their long-term investment strategy. Another way securities-backed lending can be used by a fiduciary is to support a Guarantee from the structure to a third party, or hedge unwanted risks on foreign currency assets or liabilities within the structure through foreign exchange trading.

Is there anything fiduciaries or investors should be aware of?

SR: Securities-backed lending isn’t suitable for every situation. Fiduciaries and their clients should be mindful that securities-backed lending increases the volatility of a portfolio – quite simply, adding leverage into an investment portfolio amplifies the potential for losses as well as returns.

The diversification and changing value of the collateral used as security also needs to be considered. If the value of the collateral pool falls, it will trigger a margin call requiring the collateral to be increased or the loan amount to be reduced. A diversified portfolio can help reduce that risk, and having access to liquid assets to meet any such situation can help avoid the risk of having to sell down assets in a low market environment.

It’s for those reasons that using securities-backed lending alongside our flagship discretionary portfolio management solution works well, as we can be confident in the diversity and liquidity of the assets used as collateral, helping to mitigate that risk.

How does Barclays Private Bank securities-backed lending solution work?

SR: As a multi-option product, securities-backed lending allows clients to use the funds secured for a range of purposes, including general liquidity or lifestyle needs, property purchases as well as reinvestment. Its flexibility also allows clients to access funds in multiple currencies. We’ve worked hard to make the process as seamless and simple as possible, allowing clients to access cash very quickly. That’s very important in a fast-moving environment as it enables clients to respond rapidly to mitigate risk or make the most of opportunities.


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