Despite initial reticence from the board about securities lending, the A$40 billion QSuper will shortly begin a lending program.
QSuper’s custodian, State Street, is understood to have been awarded the mandate although QSuper head of investment operations, Kyle Ringrose, last week told the ‘Global Investor’ conference in Australia that the fund could not see any significant operational risk in using a provider that wasn’t necessarily the fund’s custodian.
After some initial research into the practice, Ringrose compiled a report to table to the investment committee, but was called into the chairman’s office two days before that meeting.
“Our chairman made it quite clear that he was not a fan of securities lending,” Ringrose told the conference.
Part of Ringrose’s job was to therefore explain the practice, and its potential benefits, to the entire trustee board.
“QSuper, along with many others, still carries the scars of the GFC,” he said.
“We did also accept there was now far greater understanding even, god bless them, in the media, about what securities lending was all about.”
But issues such as what to accept as collateral and how much would be lent out at any one time raised concerns within the board.
“Convincing QSuper to take anything other than cash (as collateral for the fund’s stock) was a bit of an uphill struggle,” Ringrose said.
At the May board meeting the fund passed resolutions that enabled it to start the program.
REST manager, investment operations, Jamie Hwang, was also at the conference and said that some of his fund’s smaller fund managers that stopped securities lending during the GFC, still have those practices in place, but REST has continued its overall scheme.
“It’s not an income story, the reason we participate in securities lending, it’s incremental revenue,” he said.
– Penny Pryor