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The
move, announced by the GPIF on Tuesday, is a blow for short
sellers, who rely on securities lending to bet against companies
and who are facing renewed moves in a number of countries to
curb their activities.
"The current stock lending scheme lacks transparency in terms of
who is the ultimate borrower and for what purpose they are
borrowing," the GPIF said on its website.
The move by the fund will affect shares in its 42.5 trillion yen
($391.20 billion) foreign equities portfolio.
Japanese and overseas shares account for half of the GPIF's 160
trillion yen worth of assets. It said it will continue to lend
debt securities and may reconsider the halt to foreign stock
lending if it sees an improvement in transparency. It does not
lend its holdings of domestic shares.
Short sellers borrow shares and immediately sell them, betting
the price will fall before they buy back the shares and return
them, pocketing the difference.
Advocates see them as a healthy counterbalance to investor
over-confidence and corporate spin. Critics argue they are
destabilizing because they have an incentive to drive down a
company's share price.
Elon Musk, the chief executive of Tesla <TSLA.O>, a popular
target for short sellers, was quick to applaud the GPIF's move.
"Bravo, right thing to do! Short selling should be illegal," the
high tech entrepreneur said in a tweet.
Musk has previously criticized fund managers for lending shares
for hedge funds to short, saying the fund firms made "excessive
profit" from the practice.
Securities lending has emerged as a small but significant source
of extra returns for funds. GPIF earned 37.58 billion yen
($345.91 million) in fees from lending shares from its foreign
equity portfolio over three years to the end of its 2018
financial year.
BlackRock, the world’s largest asset manager, reported total
securities lending revenue of $597 million in 2017, compared
with $579 million in 2016, according to a securities filing.
In the July-September quarter, GPIF reported a profit of 1.8
trillion yen. Amid Japan's ultra-low interest rates, the fund,
which is closely watched by global investors, has retreated from
unprofitable domestic bonds in favor of foreign assets.
(Additional reporting by Takashi Umekawa in Tokyo; editing by
Andrew Heavens, Larry King and Carmel Crimmins)
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