The Australian superannuation system is now approaching $4 trillion in value and is growing quickly. Australian Prudential Regulation Authority data shows it grew by 4.2% in the March quarter of 2024 alone.
A combination of a low-interest-rate environment over the past few years and rising equities valuations has spurred a return to the securities lending market, driven in part by funds’ increasing scale and global outlook, and reversing a pullback by superannuation funds during the global financial crisis (GFC) and later the share market turmoil during the COVID-19 pandemic.
As they’ve grown, funds have started seeking out a broader range of investment opportunities for their rising cash flows, presenting additional lending opportunities from mature markets such as the US, UK and Japan, but also in emerging markets such as Korea, Taiwan and China, where fees can exceed 300 basis points for particular securities, especially in the more volatile sectors.
Funds’ investment heads are seeing an increased benefit in making the operational side of their business work harder.
The largest industry funds, including AustralianSuper, Australian Retirement Trust, UniSuper, Cbus and REST have been active in lending securities – namely repos and equities – in international markets for decades. Domestically, though, some stepped back from lending to short sellers during turbulent periods for equity markets, such as the GFC and the Covid-19 pandemic.
AMP’s head of portfolio management, Stuart Eliot, told Investment Magazine his fund restarted securities lending recently, partly facilitated by a reallocation of the active risk and fee budget within the portfolio.