Securities Lending in a new era: Why institutional investors are taking another look

Securities lending has become a more resilient source of incremental returns and cost reduction for institutional investors, although counterparty and collateral-reinvestment risks remain.

• Institutional investors can use lending to offset management, administration and custody costs, generate additional returns and improve benchmark tracking, particularly in passive strategies.
• The market is substantial: an average of $3.1 trillion of assets were on loan as of December 31, 2025, while BlackRock managed $7.51 trillion in lendable assets and reported that lending strategies represented more than 98% of flows.
• The post-Global Financial Crisis framework strengthened the market through tighter counterparty standards, daily mark-to-market collateral generally set at a minimum of 102% of the loan value, and more conservative cash-collateral reinvestment.
• Cash collateral is typically invested in highly liquid money-market or short-term investment funds, but the 2008 crisis showed that reinvestment risk, including market, liquidity and credit losses, was the main source of investor concern.
• The market continued to operate through COVID-19, the March 2023 U.S. regional banking crisis and the Credit Suisse failure; BlackRock recorded 81 non-lending client conversions by December 2025, compared with 50 in December 2022.

Takeaway: Institutional investors should reassess securities lending as a potential cost-reduction and return-enhancement tool rather than treating non-participation as risk neutral, while maintaining strict controls over counterparties, collateral and reinvestment.