“We are in the process of managing down the exposure to less liquid securities lending assets via pay downs and maturities. Once this process is complete, we will revert to a more conventional redemption policy. We apologise if this new policy causes any inconvenience, however we are confident that the Responsible Entity has acted in the best interest of all unitholders in making this decision.”

Shead said the global process of “running down” the book of asset-backed securities had begun 18 months ago, but that some of the intermediate securities had terms that lasted a number of years. SSgA now invested new sec lending collateral only in short term money market securities with 1-3 months’ maturity, he added. 

SSgA Australia was talking to local investors about launching new versions of its trusts that did not have a securities lending program attached, Shead said – this is understood to be standard practice in other SSgA businesses around the world.

Some investors said a ‘liquidating trust’ had been proposed to them by SSgA. For investors who lack a custodian or the wherewithal to deal with illiquid securities, it is understood SSgA would issue them units in this trust instead of the in specie portion of a redemption, and manage down the exposure to collateral assets for them.

It could not be confirmed at presstime whether SSgA will offer such a trust, and what if anything they would charge for it.

An asset consultant familiar with the matter urged those redeeming from SSgA trusts not to dump the sec lending collateral assets, as the outlook for them would improve as credit markets gradually returned to normal.

The consultant said SSgA “probably could have been more transparent” about the problems that began mounting in the global collateral pools last year, but that it was acting honorably.

Clients directing anger at SSgA should reflect on their own actions, they said.

“Either they have not read their original PDS properly, or they have not viewed securities lending as the investment activity that it is. They were happy to receive the extra returns in the good times, now they have to take the bad with the good.”


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