By the same quarter in 2008, that income had dropped 30 per cent to $50,000, and a similar profit was made in the corresponding quarter of 2009. In response to “a couple of enquiries from members”, in May 2008 CARE Super chief investment officer Greg Nolan wrote to his membership about securities lending, explaining why the fund would stick with it, despite the bad press that super funds were receiving at the time for doing so. Nolan stressed the conservatism of the program, and the control it allowed CARE to retain over its holdings. “CARE Super undertakes this practice through our custodian – National Asset Servicing (NAB) – under very strict conditions. These include: – Only lending stock on a fully secured basis – Only lending relatively low levels of total stock holdings – Stock is lent for a relatively short period of time (usually 30 days after which the lending arrangements are renegotiated) – We recall all stock for voting purposes (ie CARE Super retains the voting rights of all its shares) – We retain all rights to any dividends, franking credits, bonus issues or any other rights which might accrue to the stock during the loan period.
In addition NAB assumes all associated risks (such as counterparty credit risk and collateral deficiency); making it highly unlikely that CARE Super could suffer any loss from a failure in the lending program.” Nolan has stuck to his guns on securities lending, not altering any conditions of the principal program CARE Super runs through NAB. It’s a demonstration of good faith which Nolan hopes will stand the fund in good stead when demand for lending returns in earnest. “It’s a bit cute if you start being selective about what stocks you will and will not lend. The brokers will just wipe you,” he says, referring to the chances of one’s securities being selected from the ‘queue’ of those available to lend, especially when a stock has entered a ‘special’ situation and the fee which borrowers will agree to pay skyrockets. That being said, Nolan estimates that about “once a year’ it does ask its lending agent and custodian, NAB, to recall a particular stock outside of standard voting periods, at the request of one of its Australian equity managers, if the manager is able to convince the fund that “something is going on” in terms of short positions against that stock. Many institutions have not been as steadfast of CARE regarding their securities lending programs.
