QSuper happy with securities lending programme

QSuper happy with securities lending programme

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QSuper’s investment operations head says that short selling does not lead to declines in stock prices, speaking at the Global Investor/ISF Master Class Australia on July 9.

Kyle Ringrose announced last year that the $40bn super fund was about to embark on a securities lending programme.

At this year’s event he told delegates not to believe the negative hype around securities lending.

this perception in the industry by some that securities lending leads to short selling and hence is bad,” he said this year.
“Short sellers do not amplify price declines, all they do is push prices back to where they should be.”

Last year Ringrose said he had faced some difficulties in convincing the fund’s board of the merits of the programme.

While acknowledging that QSuper has a fairly conservative programme, Ringrose reported no significant incidents over the past 12 months. Although he said there were minor issues around some securities not being returned, these did not result in a cost to the fund.

The fund did come across some unexpected tax issues, particularly around setting up offshore trusts.

“Our tax advisors looked very carefully at this. If the Australian Taxation Office assumes you are setting up an entity…specifically for the purpose of avoiding tax they will be very, very unhappy,” Ringrose explained.

Although unwilling to shed light on the specific tax advice QSuper received, Ringrose believed that many funds might miss the potential tax risks with overseas trusts.

QSuper has managed to incorporate screening of its securities lending process into its regular monitoring activities, as supplied by its custodian State Street, and examines the programme daily.

“We have a restricted borrowers list, we only take certain approved collateral,” Ringrose said.

“We have a very conservative securities lending programme and the revenues we have attracted are very much consistent with our expectations and certainly consistent with what the industry expects.”

A year on the fund reports no adverse affects. It is about to revisit the initial pilot programme and review whether or not it wants to be more aggressive.

 

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