QSuper reviews securities lending program

Kyle Ringrose
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(Pictured: Kyle Ringrose)

By Penny Pryor

QSuper is about to review it’s pilot securities lending program and determine whether it wants to be more aggressive, head of investment operations at the $40 billion fund, Kyle Ringrose, told delegates at the Global Investor/ISF Masterclass Australia conference last week.

Ringrose announced that the fund would be starting up a securities lending program at the same conference last year.

A year into the program at the $40 billion fund, Ringrose reported that there had been no adverse affects.

“[There is] this perception in the industry by some that securities lending leads to short selling and hence is bad,” he said.

“Short sellers do not amplify price declines, all they do is push prices back to where they should be.”

QSuper’s program has been fairly conservative and Ringrose said there had been no significant incidents over the past 12 months, apart from minor issues around some securities not being returned, but nothing that resulted in a cost to the fund.

There were some issues around tax and setting up offshore trusts that required careful analysis.

“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 not willing to divulge the specific tax advice the fund received, Ringrose believes that many might miss the potential tax risks with overseas trusts.

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

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

Speaking on a panel which also included Natalie Float, head of ALMT, FX and agency lending at BNP Paribas Securities Services, Lounarda David, manager investment operations at Sunsuper and Phil Garrett, head of securities finance, Australia, Ringrose said that the revenues the program had generated were consistent with the fund’s expectations and industry norms.

He also recognised the benefits of using a securities lending program with indemnification.

“You can have an awful lot of confidence [that they are] exercising the same level of due diligence over the people they are lending the securities too [if that indemnification is there],” he said.

However, indemnification may become more expensive given the stricter requirements around high-quality liquid assets that are now required.

“The type of indemnification will start to be implicated by the type of capital on the balance sheet,” David said.

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