The arrival of COVID-19 in Australia has inspired a wave of anti-short selling sentiment that has so far driven three of the top-five largest lenders to shutter their programmes, with senior politicians cheering them on.
Since March 2020, when COVID-19 first exploded out of Asia, at least three of the top-five largest superannuation funds — measured by assets under management (AuM) — have closed or significantly curtailed their securities lending programmes to cut off short sellers from access to those assets.
Most recently, AustralianSuper, the market’s largest fund with more than AUS 200 billion (USD 154.8 billion) in AuM made a temporary freeze on lending its Australian equities portfolio permanent in December 2020.
The fund first halted lending on domestic assets in March 2020 in response to concerns around the pandemic’s negative impact on local equity markets.
An AustralianSuper spokesperson tells SFT the fund acknowledges securities lending is “an important part of any well-functioning market, and while required for short selling is also used for many other purposes such as derivatives hedging, balance sheet optimisation, index fair value and dual-listing relative value transactions”.
Just before AustralianSuper instigated a lending freeze, UniSuper, the fifth-largest fund with AUS 85.5 billion (USD 66.2 billion) in AuM according to Australian financial comparison provider Canstar, publicly announced it had instructed its custodian BNP Paribas to recall on-loan shares as a direct response to the COVID-19 market turmoil.
Speaking at the time, the fund’s chief investment officer (CIO) John Pearce said: “We are now in a market gripped by panic and we believe that restricting the ability to short sell is in the best interest of promoting a more orderly market.”
Pearce also called on other funds to follow UniSuper’s example, noting: "We are only one fund and the efficacy of our actions will depend on how many other funds follow a similar path.”
The CIO explained that during normal trading conditions short selling "adds to liquidity and price discovery in an orderly market" but one year on the fund says it has no plans to restart lending.
Pearce’s rallying cry was heard by QSuper, the third-largest fund according to Australian financial comparison provider Canstar, which also shuttered its securities lending programme it had run through State Street since 2013.
The programme, which principally contained Australian and international equities, was terminated in April 2020, leading to several million dollars of gross earning losses compared to the fund’s 2019 financial report.
More recently, the multi-billion dollar drain on the lending pool is being celebrated by some in the political sphere.
An Australian senator recently used a parliamentary debate to call on all superannuation funds to stop facilitating short selling, arguing it goes against their fiduciary duty to clients.
Speaking in the upper house of the Australian Parliament during the second reading on proposed amendments to the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020, Queensland Liberal National Party Senator Gerard Rennick said that short selling was a “heinous practise that should be abolished”.
“Short selling is another example of how superannuation funds aren’t protecting the interests of their fund managers,” he declared to the house.
Rennick praised the example set by AustralianSuper and QSuper and recommended that others follow suit.
Following the hearing, Rennick tells SFT that he is also lobbying the treasurer and the assistant treasurer to repeal the loophole that allows share owners to lend stocks without having to pay capital gains tax.
