CalPERS, Maryland Sec Lending Programs Respond to Markets

The California Public Employees’ Retirement System (CalPERS) announced a temporary pullback of shares of four financial institutions in its Securities Lending Program.  

Noting that “no other companies whose shares are in the pension fund’s public stock portfolio are affected,” the $220 billion fund said that it was “temporarily restricting the securities of Goldman Sachs, Morgan Stanley, State Street, and Wachovia.”   In a press release, Anne Stausboll, Interim CalPERS Chief Investment Officer, said “We want to do our part and help mitigate the current instability of the market and any potential adverse short-selling impact on these important financial institutions. Our Securities Lending Program otherwise will remain the same.”

Next Steps

“We will continue to monitor the situation and remain in close communication with agents and our borrowing counterparts. We anticipate lifting these loan restrictions once the market volatility abates,” Stausboll said.

In the  announcement CalPERS said it intended to “…remain an active participant in securities lending, which we believe is an important mechanism in the financial markets that provides crucial liquidity and contributes to the orderly, efficient operations of the global financial system. We believe our action to temporarily restrict certain U.S. financial securities from lending will help improve the current instability in the market.”

Securities lending is an investment strategy through which institutional investors lend securities to borrowing institutions in order to earn incremental income on their portfolios.   Over the last eight years, CalPERS has auctioned off $779 billion in assets through 30 separate auctions.

Mansco Perry, Chief Investment Officer for the State Retirement and Pension System of Maryland, announced a decision to remove all financial stocks from availability to the System's securities lending program.

"We don't want our long-term holdings to be borrowed by short sellers and used to aggressively push down stock prices and destabilize our financial system," said Nancy K. Kopp, State Treasurer and Chair of the System's board.

In announcing the move, the system noted that "currently, regulators are concerned that speculation using short-selling is fueling the drop of financial security prices to well below their fundamental values."   The Maryland announcement said that the action was "…being taken for an indefinite period of time for the retirement system's holdings of commercial and investment banks, insurance companies, and savings and loans."  

The intent of this action is to bolster the efforts of the SEC and other federal agencies in managing the decline of financial stocks in the current market place," said Perry.