about 4 years ago • 2 mins
Japan’s gigantic public pension fund, which manages $1.6 trillion in assets including $730 billion in equities, said on Tuesday it will stop lending out stocks to generate extra income – meaning that short sellers will find it harder to get hold of the shares they need to bet on prices falling.
The Government Pension Investment Fund (GPIF) said that lending shares for use by short sellers stopped it from properly overseeing the activities of companies it invests in. That’s because when a stock goes out on loan the voting rights go too, so the fund no longer has any say on company policy.
In a world of low investment yields, the move will end a steady income stream for the GPIF. Fees from lending out non-Japanese stocks brought in $300 million in 2018 – although that’s less than a 0.1% return from its $370 billion holdings of such shares.
The move highlights tensions in the push to bring more ethical considerations to investing by looking at the environmental, social, and governance (a.k.a. ESG) record of companies 💚
The GPIF wants to use its voting rights to fulfill its “stewardship responsibilities” over investments. But if it ends up reducing the ability of short sellers to bet against overvalued stocks or corrupt companies it could accidentally lessen the market’s role in overseeing company behavior – or even help fuel bubbles. Though for that to happen it’s likely that other big money managers would have to follow the GPIF’s lead.
As much as a quarter of the electric car maker’s stock was out on loan to short sellers this summer. This so-called short interest fell in recent months as better-than-expected profit helped the stock rally. If the GPIF is setting a trend, short interest may fall even further.
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