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The Actuary The magazine of the Institute & Faculty of Actuaries
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A closer look at stock-lending

Stock markets have a need for stock to lubricate their liquidity, even where most of the shares are held long-term by institutions. So, stock-lending for brief periods in return for collateral security has become a way for pension funds particularly to make a small extra turn on their investment without giving up the original underlying investment. It is a common practice with index-tracking funds, where the fund manager might share the proceeds with the pension fund.

The Pensions Regulator is now urging pension fund trustees to take a more careful look at the stock-lending arrangements that may be in place with their managers, after uncovering a number of cases where trustees did not understand that they were engaged in this.

Stock-lending was, of course, one of the ways in which Robert Maxwell got hold of pension fund assets, so trustees have been encouraged to be more vigilant ever since then.