It could be argued that the trading strategies thwarted by securities lending and short selling are by nature shorter term strategies, and to some extent what happens day to day doesn’t matter in the grand scheme of things if your investment time horizon is a long one.

Securities lending is basically a situation in which asset-owners with a long term time horizon can generate income on an annuity basis. If they believe that their stocks will appreciate over the long term, irrespective of what other people do in the very short term, it’s probably a good way of generating additional returns for funds.

But as Paul Fiani, founder of Integrity Asset Management, points out, while superannuation funds are long term investors, their members live in a series of short runs, and managers have an interest in performance being good at all times. “You can say that super funds are a long term investment, but the ultimate client, the member, wants the return to be good every year, therefore the manger does too.”

We may not have heard the last story of a super fund suspending its securities lending program.

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