A. A. Nazzaro Associates - Company Profile

"The Securities Lending Manager is not the Principal Lender, and not the custodian bank but an independent third party, hence the name. This mode of lending is a hybrid of the bank and in-house programs attempting to provide the best attributes of both. The outside manager seeks to provide the expertise of the bank program but without its portfolio dilution while maintaining the control and profitability of the in-house program.

For the Fund that is not large enough to command a stand alone in-house program but has an attractive portfolio and seeks to maximize its lending potential, the independent manager provides an alternative. Outside managers seek to provide the relatively small client/fund with enhanced portfolio visibility and greater loan opportunities. This is a reasonable expectation given the fact that the manager may have only a limited number of clients. In addition, the Fund can dictate specifically tailored investment guidelines, a segregated investment portfolio, approved borrowers, reporting detail and frequency, and overall high level of supervision.

A good manager with strong client communication and participation can simulate an in-house program. This requires a much more active and involved Fund. The profile of the fund/lender using an outside manager is generally one who has an in-depth knowledge and understanding of securities lending, experience and a willingness to be involved in the activity. Typically, the custodian bank still plays an integral role in this mode since all activity and instructions must flow through the custodian. This can provide the lender with another layer of reporting and supervision over the lending program. Also, fee splits are more negotiable and heavily weighted in favor of the Lender.

A drawback to the outside manager may be the overall size of the manager's base of lendable assets. Whereas the bank managed program may be too large, the outside manager program may be too small resulting in an inability to compete effectively. One must find a Manger that strikes the right balance in terms of the number of clients, size of lendable assets and compatibility since the relationship takes on partnership-like qualities. This can be a very rewarding route to securities lending given the right combination of Fund and Manager." 1

1 Anthony A. Nazzaro, "Evaluating Lending Options," Securities Finance, Securities Lending and Repurchase Agreements, Ed. Frank J. Fabozzi & Steven V. Mann, 2005, pp. 79-85.