World’s Biggest Pension Fund Stops Lending Shares to Short Sellers

Japanese giant GPIF has halted stock lending from its equity portfolio:

Japan’s public pension fund has struck a blow against short-sellers, declaring that it will no longer allow overseas shares to be lent out from its ¥80tn ($733bn) global equity portfolio. 

Financial Times

In a major blow to short sellers, Japan’s public pension will no longer lend shares from its equity portfolio of nearly three-quarters of a trillion dollars. This will raise borrowing costs for all shawties, even more so if this trend continues to take hold among other large equity holders.

The GPIF said it was concerned that lending stocks out stopped it exercising proper stewardship over the underlying investments. This included a lack of transparency over the final borrower and how it was using GPIF shares. Should these concerns be addressed, said the fund, it will consider lending stocks again.

Financial Times

The decision will incur a direct financial cost to the Japanese fund. According to the GPIF’s most recent annual report, it declared a net $300m in fees from lending shares that sit in the foreign segment of its portfolio over last three years to 2018. 

Financial Times

Bravo to the pension fund for taking a $300 million hit and no longer lending shares.

Traders in Tokyo said the immediate risk the GPIF’s decision posed to markets is that other asset managers may feel obliged to follow its lead in effectively branding the practice of short selling as “non-ESG”.

Financial Times

If people had any idea what kind of fraud was being enabled by these borrowed shares, they’d be horrified.

There are numerous aspects of securities lending that can present issues for ESG-minded investors. For example, if a stock is out on loan, the voting rights go with it, which means the asset owner cannot engage with its portfolio companies.

Asset owners also typically have little say over what happens with their securities once they are lent out. Many investors are concerned their securities will be used for tax evasion purposes.

Financial Times

That, or they could help someone run and profit from a disinformation campaign.

Read the full story at Financial Times

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