AustralianSuper has been asked by one of its small cap managers to cut back on the lending of securities in its portfolio, because the manager believed its performance was being eroded.

AustralianSuper investment manager, Peter Curtis, said the request, which was made in the first quarter this year “during all the [short selling] hype”, was an example of the misinformation surrounding securities lending. The $28 billion fund reviewed its $200 million mandate with the said small cap manager to ascertain the extent of stock lending within that particular portfolio. It found that despite 10 per cent – or $20 million – of this portfolio being available for the super fund’s lending program, the portfolio had only had an average of $5 million of its stocks on loan at any one time for the last 12 months. It is the only request AustralianSuper has had to date, but I&T News understands the super fund may not be alone in receiving these appeals from funds managers. Curtis told delegates at the RiskMetrics conference in Melbourne last week that the discussion of securities lending had seen a lot of hysteria – and not much analysis. AustralianSuper conducted a review of its entire securities lending program off the back of the increased public scrutiny of the practice. It found utilisation rates (the amount of stock on loan) had dropped – not increased – to a little below 10 per cent during Q1 2008, when steep share price drops of high profile companies were being attributed to short sellers, and by association to securities lenders. AustralianSuper’s average utilisation rate is usually between 10 per cent and 12 per cent, Curtis said. In the specific case of childcare business ABC Learning, the review found that there had been a higher than normal level of utilisation about 12 months ago, but not in January when its sharp share price drop was blamed by some on short selling. Curtis said AustralianSuper had not changed its securities lending program, run by its custodian JPMorgan, following the review. On the contrary, it was comfortable with the program, regarding it as an “important source of revenue for the fund and an important source of liquidity for the market”.

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