Home > News > Newsmakers > Japan’s GPIF Seeks Data on Effect of Securities-Lending Suspension
Newsmakers

Japan’s GPIF Seeks Data on Effect of Securities-Lending Suspension

The $1.73 trillion pension giant has issued a request for information regarding its 2019 decision to stop lending securities to short sellers.
By Michael Katz



Japan’s $1.73 trillion Government Pension Investment Fund has issued a request for information  on quantitative analytical methods to analyze the effect that the pension giant’s 2019 decision to stop lending securities has had on the market.  GPIF said it will consider conducting research/analysis relating to stock-lending activities based on the information it receives through the RFI.

“Given the certain period of time has passed since the suspension and as a result the market data has been accumulated gradually,” the pension fund said, “GPIF would like to consider to conduct quantitative analyses on the effect of its stock-lending suspension to the market.”

In late 2019, the GPIF suspended stock lending for short selling, calling the practice inconsistent with its responsibilities as a long-term investor. The move was considered a blow for short sellers, who rely on securities lending to bet against companies. Short sellers borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them, pocketing the difference.

Critics of short selling, such as Tesla CEO Elon Musk, argue it is a destabilizing practice because short sellers have an incentive to drive down a company’s share price. Musk has even said it should be illegal. However, short sellers see themselves as a healthy counterbalance to investor over-confidence and corporate spin and misinformation.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

“The current stock-lending scheme lacks transparency in terms of who is the ultimate borrower and for what purpose they are borrowing,” the GPIF said at the time.

The fund had said that as part of its stewardship responsibilities, it requires its asset managers to improve the long-term value of investee companies by exercising voting rights conscientiously, as well as engaging in constructive dialog with the companies. However, the fund said stock lending is contradictory to this requirement because it results in a temporary transfer of ownership rights to the borrower.

“This effectively creates a gap in the period in which the stock is held by GPIF and can be considered to be inconsistent with the fulfillment of the stewardship responsibilities of a long-term investor,” the fund said in 2019. “Moreover, the current stock lending scheme lacks transparency in terms of who is the ultimate borrower and for what purpose they are borrowing the stock.”

The pension fund’s RFI relates to any information and ideas of quantitative analytical methods based on data; the “information and ideas” of quantitative analytical methods and necessary data for analyzing the effects of its stock lending suspension to the market; and any information supportive to conduct the quantitative analyses. It is also looking for information relating to recent stock lending market trends, developments, and main players, as well as academic research papers relating to stock-lending activities, and any other matter relating to stock lending. The deadline for the RFI is March 31.

Related Stories:

Japanese Pension Giant GPIF Suspends Stock Lending for Short Selling

Japan’s GPIF Finds Portfolio Firms Proactive on ESG Disclosure

Domestic Equities Weigh Down Japan’s Pension Giant

Tags: , , , , , , ,

Home > News > Asset Managers Hustle to Offer Better-Yielding Cash Funds

Asset Managers Hustle to Offer Better-Yielding Cash Funds

With rates pointing up, Northern Trust, BlackRock, and others aim for liquidity-laden institutional clients.
By Larry Light



Cash is no longer trash, with short-term interest rates heading upward. And that spells opportunity for asset managers.

The Federal Reserve, embarking on an inflation-fighting tightening regimen, expects its benchmark federal funds rate to be near 1.9% by year-end, up from near zero recently. And the Fed expects to keep on raising rates next year.

So various asset managers are putting resources into cash management for institutional clients, with the goal of actually reaping decent (albeit hardly astronomical) returns for a change. And at the same time, the managers seek to maintain a cash stash’s historical use, as a buffer against foul fortune and ready firepower for sudden breaks, such as an acquisition.

Bank money market accounts, previously paying a pittance, now can generate as much as 0.2% for a minimum $100,000, per Bankrate.com, with much higher rates enroute. “Investors are asking how we can be more productive with our cash,” says Peter Yi, director of short-duration fixed income at Northern Trust Asset Management.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

NTAM, along with other asset managers such as BlackRock and Fidelity Investments, are re-tooling their cash management strategies to attract more business for this rejuvenated asset class. NTAM has $364 billion in cash under management.

No doubt, the opportunity is rife. Companies now have a record amount of cash and short-term investments on their books, more than $2 trillion at nonfinancial S&P 500 companies at last count, with Apple the champ, at $202 billion. Cash also is a strong presence among institutional investors, most notably the South Dakota Investment Council and the Minnesota State Board of Investment.

In NTAM’s case, there’s a framework that divides a cash pile into three segments, with the one at the upper end aimed at generating the most return. This may be invested in ultra-short-duration products, such as short-term investment-grade corporate bonds, which uses active management to magnify yield.

This segment, which NTAM labels as “strategic, has durations generally ranging from six months to a year and can yield up to 2%. It makes up 10% of the invested money in the strategy.

The middle-ranked tier of holdings (also comprising 10% and called the “reserve” segment) is focused on the likes of corporate commercial paper. Nonfinancial paper, with a 30-day maturity, yields on average 0.85%, according to the Federal Reserve.

The third and largest (an 80% portion) segment is the most liquid so it could be drawn upon first in a pinch. This batch, known as “operational,” is in  money market mutual funds, now churning out as much as 0.25%. They can be cashed in at any time and are not federally insured up to a certain point.

All these cash funds can be tailored to a client’s needs. As BlackRock puts it in a promotion piece, “we embrace each client’s risk tolerances, specific guidelines, and liquidity needs in the development of a separate account strategy.”

Related Stories:

Will the Federal Reserve Go Too Far?

What Corporate Cash Use Helps Stocks Most in the Pandemic?

Two Cash-Holding CIOs and the Changes They’ve Been Making

Tags: , , , , , ,

«