This Japanese Pension Giant Will No Longer Supply Short Sellers And Elon Musk Is Happy

This Japanese Pension Giant Will No Longer Supply Short Sellers And Elon Musk Is Happy

about 4 years ago2 mins

Mentioned in story

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.

What does this mean?

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.

Why should I care?

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.

Still, the decision has already been met with approval from one company perennially targeted by short sellers: Tesla CEO Elon Musk tweeted “Bravo, right thing to do! Short selling should be illegal.”

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.

Source: Koyfin
Source: Koyfin
Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG