Adoption of stock lending recall service

We’re pleased to announce the adoption of an automated proxy support service from custodian Northern Trust to allow LPF to vote our full shareholding at the AGM of every company held by the fund.

This will allow LPF to vote our full shareholding at the AGM of every company held by the fund, by initiating the return of loan positions automatically triggered by meeting announcements.
Our Chief Investment Officer Bruce Miller said: “Stock lending is a key part of an efficient market. We believe in long-term investing, and the lending of stocks doesn’t impact on the long-term returns of the portfolio. Stock lending also generates significant fee income for LPF, providing a boost to the long-term performance of the fund”.
Bruce is also very aware of the potential impact on voting stock lending can have: “We’re committed to voting at the AGM of every company we hold and have always excluded a portion of each portfolio from the stock lending programme. Over the last few years our voting, particularly on climate issues, has become more active. This can best be seen in our membership of Climate Action 100+ and our co-filing of last year’s climate resolution at BP. We must make every effort to have the greatest impact we can in votes that we believe in. Ensuring the efficient and timely return of stock in the lending programme allows us to have the biggest impact on behalf of our members.”
Portfolio Manager Albert Chen has been at the forefront of discussions with Northern Trust during the development of the new service. He says: “Appropriately collateralised stock lending provides investors with the opportunity to improve returns without taking on undue risk. However, the loss of voting rights is often accepted as part and parcel of securing stock lending income. We began discussing the possibility of an automated stock recall service with Northern Trust during late 2019 and have been pleased with their acknowledgment of how important this issue has become to asset owners. While adopting this new approach means we’ll see some reduction in stock lending income, we think the ability to vote our entire shareholding takes precedence.”
Our Chief Executive Officer Doug Heron said: “As a responsible investor it’s vital that we use our votes to make the maximum impact we can on behalf of our stakeholders. If this means sacrificing fee income because it’s the right thing to do, then we’ll do that. This is a progressive move by the investment team at Lothian Pension Fund, but we believe that it will set the standard for management of stock lending going forward.”
Mark Jones, Head of Securities Lending for EMEA at Northern Trust adds: “As their securities lending provider, Northern Trust is committed to helping clients meet their ESG and broader corporate governance objectives – and providing options for voting requirements is one of a number of ways we can do this. The solution we have implemented with LPF closely supports these objectives within a securities lending programme that remains focused on delivering sustainable, long term returns for members.”

Published: 16th June 2020