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Talking points: securities lenders on Asia

21 February 2014

Beneficial owners in the Asia Pacific region need to see conditions more conducive for securities lending before they increase their programmes, finds Paulina Pielichata

Read more: Hospital Authority Provident Fund Scheme AustralianSuper Woori Asset Management PAAMCO


Heman Wong, executive director of the Hospital Authority Provident Fund Scheme in Hong Kong
Our scheme participated in securities lending until the global financial crisis in 2008 and our lending programme generated an income of $2m to $3m each year. However, the crisis induced us to take a fresh look at the activity. The model – deploying cash collateral to invest into short-term paper to enhance returns – introduced a risk that a lot of investors neglected at the time.

Many investors suddenly found their invested portfolio breaking the buck, the net asset value falling below $1. When liquidity became an issue, unwinding the underlying invested short-term paper suddenly introduced market risk. In our view, this kind of risk is difficult to explain to scheme members. From that perspective, it is no longer a pure lending activity.

One might ask whether or when we would re-consider participating in securities lending. The...