Japan’s Government Pension Investment Fund, notably the largest pool of retirement savings in the world, announced Tuesday that it will no longer participate in the lending of its equities for purposes of short-selling.
The announcement emphasized that the fund has come to view the practice of equity lending as misaligned with its stewardship goals.
In its capacity as a shareholder, the GPIF makes every effort to engage with the companies it owns equities in, whether through constructive dialogue or shareholder votes, noted a release from the fund. With this in mind, the fund concluded that lending stocks to short-sellers “. . . creates a gap in the period in which the stock is held by GPIF and can be considered to be inconsistent with the fulfillment of the stewardship responsibilities of a long-term investor.”
It also noted that this lending practice lacks transparency in terms of why the borrower wants to use the stock in question.
The GPIF said that if transparency were to improve, it may reconsider its position, noting the suspension of lending only applies to equities, not to debt securities, which it will continue to lend.
Here in Canada, this type of securities lending, while certainly not ubiquitous, is something pension boards usually discuss, says Gord Lewis, senior vice-president at Proteus Performance Management. “For defined benefit plans, this would apply to plans that have investments in segregated portfolios, rather than, say, pooled funds.”
The custodial agreements around loans like this will often indicate what type of revenue a plan can expect and normally stipulate the collateral requirements for the counterparts to, indeed, borrow those securities, he says.
With the long-term mentality with which pension plans are typically investing in equities, securities lending can be a way to gain additional return from assets they were going to continue to hold anyway, he notes.
“Frankly it’s a relatively easy way for a plan to pick up [a few] basis points. And if it’s a really big plan, that can add up. That can be some real dollars.”