This is a crucial guide for local authority pension funds seeking to achieve the appropriate standard within the Knowledge and Skills Framework in this specialist activity.
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Much has changed since 2006 when the CIPFA Pensions Panel launched its last guide to stock lending. Now more commonly known as securities lending, it is generally accepted that this industry passed its stress test when Lehman Brothers collapsed in September 2008, but vulnerabilities were revealed. Regulators such as the Financial Services Authority, and industry overseers such as the Bank of England both emphasised that the associated risks and rewards need to be fully understood by beneficial owners who lend out, or are considering lending out, their stocks. They need in-house knowledge and expertise, rather than being over-reliant on agent lenders for guidance.
CIPFA’s guidance has now been fully revised and brought up to date to reflect the learning and market and regulatory changes arising from the Lehman Brothers’ experience. It sets out the up-to-date legal framework within which local authority pensions funds can carry out this activity, and indicates different routes to market. It shows the benefits, risks and safeguards within stock lending, and shows what opportunities exist to potentially increase revenues within self-selected risk parameters. It also takes a look at what industry changes are on the horizon. Key dimensions for local authorities, such as governance, procurement, accounting and reporting also feature within this expanded publication.
As local authority pension schemes are maturing at a sharply increased pace, asset allocations will be revised to reflect the updated projections of cash flows. Stock lending therefore offers an increasingly attractive opportunity to add value to funds: ‘low risk’, not ‘no risk’, so it has to be approached from a solid basis of knowledge.
For local authority pension funds seeking to achieve the appropriate standard within the Knowledge and Skills Framework in this very specialist activity, this guide should be essential reading.
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