Unlocking value through a smarter use of leverage

Investors do not need to sign up to onerous restrictions or unfavorable terms in order to borrow against their shares

Whether buying a house or a single stock, investors understand that leverage can be a powerful tool for their portfolio. Borrowing against shares, however, can be a daunting prospect. Loan agreements often come with strings attached that restrict how borrowers can use the proceeds or leave them locked into other products.

Margin calls can also be ruinous: if investors are unable to put up extra collateral immediately, they can face liquidation – often at the bottom of the market.

Margin calls have led to no end of lawsuits as investors look to recoup some of the losses from forced liquidations. Market shocks such as the 2008 financial crisis, 2016 Brexit referendum and, most recently, the 2020 Covid sell-off, are inevitably followed by years of litigation.

Courts have tended to side with banks or brokers, finding that leveraged investment contracts give lenders clear rights to liquidate positions. In 2013, the London High Court found in favour of Deutsche Bank in an US$8 billion case relating to the liquidation of investments by a Norwegian billionaire client during the 2008 crisis.[1]

Margin calls can also have a disastrous impact on company valuations, by adding to selling pressure in a weak market – especially if the underlying collateral is a thinly traded stock. And when margin calls affect positions that have grown to tens of billions of dollars, the knock-on effects from forced liquidations are exacerbated. The implosion of US hedge fund Archegos Capital Management after a succession of margin calls in March 2021 roiled markets and left its lenders nursing losses in the billions of dollars.[2]

Complete flexibility

At EquitiesFirst, we believe there is a better alternative for investors looking to borrow against their shares. Our financings are structured as sale and repurchase agreements, and we take a pragmatic approach to additional collateral requirements throughout the term of the agreement. Throughout our 20-year history, we have always returned the same number of shares to the borrower at the end of the term.

Our model is also free from the strings that are so often attached to margin lending. Private banks and prime brokers will typically allow clients to trade on the margin only when they purchase securities through their institution or keep a minimum balance in their account. In contrast, a deal with EquitiesFirst gives borrowers access to versatile funding at very attractive interest rates.

We are also cautious about how we manage our own risks. We approach every deal as an opportunity to add to our long-term public equities portfolio, and steer clear of the risky, highly leveraged strategies that have caused so much trouble for private banks and their clients in the past. We do not rely on external investors, and we do not engage in short-selling or permit lending assets to third parties.

Structuring deals in this way has helped us grow as a private company for almost 20 years, free from the burden of quarterly reports and pressure from external shareholders.

All forms of borrowing come with risks. In volatile markets, however, a well-structured equity-backed loan from an alternative liquidity provider can allow investors to ride out temporary disruptions without sacrificing their long-term belief in the stock.

[1] https://www.ft.com/content/a64a1535-f518-4465-b67f-44b19aa97ff3

[2] https://www.credit-suisse.com/about-us/en/reports-research/archegos-info-kit.html


Past performance does not guarantee future returns, and individual returns are not guaranteed or warranted.

This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst.  EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete.  Opinions and information herein are subject to change without notice.  The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.

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The information contained in this Document is intended to be general in nature and is not personal financial product advice. Any advice contained in the Document is general advice only and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant disclosure statements or other offer documents prior to making an investment decision about a financial product.

Hong Kong: Equities First Holdings Hong Kong Limited is licensed under the Money Lenders Ordinance (Money Lender’s Licence No. 1681/2023) and to carry on the business of dealing in securities (Type 1 licence) under the Securities and Futures Ordinance (“SFO”) (CE No. BFJ407).  This Document has not been reviewed by the Hong Kong Securities and Futures Commission. It is not intended as an offer to sell securities or a solicitation to buy any product managed or provided by Equities First Holdings Hong Kong Limited and is only intended for persons who qualify as Professional Investors under the SFO. This document is not directed to individuals or organizations for whom such offers or invitations would be unlawful or prohibited.

Korea: The foregoing is intended solely for sophisticated investors, professional investors or otherwise qualified investors who have sufficient knowledge and experience in entering into securities financing transactions.  It is not intended for, and should not be used by, persons who do not meet those criteria.  

United Kingdom: Equities First (London) Limited is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”).  In the UK, this Document is only being distributed and made available to persons of the kind described in Article 19(5) (investment professionals) and Article 49(2) (high net worth companies, unincorporated associations etc.) of Part IV of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (‘’FPO’’) and any investment activity to which this presentation relates is only available to, and will only be engaged in with, such persons. Persons who do not have professional experience in matters relating to investment or who are not persons to whom Article 49 of the FPO applies should not rely on this document. This Document is only prepared for and available to persons who qualify as Professional Investors under the Markets in Financial Instruments Directive.