UK/US - Pension managers are retaining their securities lending programmes despite a major loss in a US scheme.
The US-based New York City Retirement System has reported a loss of $89m (£56.8m) through its securities lending reinvestment programme with Citibank.
But UK scheme managers, far from rethinking their investment portfolios, are urging schemes to continue to use these programmes.
J. Sainsbury Pension & Death Benefit Scheme manager Geof Pearson urged schemes to get collateral before lending stock.
Pearson said: “There’s always a risk, but when you’ve got collateral lodged with your custodian you feel secure. If anything happens, we expect the money to cover that.
“We’ve minimised that risk.”
He pointed out that schemes can use the money gained from running a securities lending programme to reduce their operating costs.
The £2.1bn scheme has loaned securities for the past decade, which typically produces a one basis point profit or £150,000 per annum.
BT Pension Scheme secretary Colin Hartridge-Price agreed that risks could be minimised but warned that any scheme which loaned stock had to make sure its voting rights would not be affected.
He said: “The main concern is that lending securities could be misused in voting at annual general meetings.”
But Watson Wyatt partner Brian Hill stressed that schemes must keep an eye on the “quality of collateral” in securities lending.
He said: “The problem is getting your stock back. The UK does not accept cash as collateral – you lend stock, but you get back a portfolio of stock so obviously you have price exposure.
“The thing you have to keep an eye on is the quality of the collateral.”
The loss at New York City Retirement System was attributed to an investment in asset-backed securities issued by the healthcare finance provider National Century Financial Enterprise, which collapsed in November and is currently being investigated by the FBI.
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