CIO of GPIF, large Japanese sovereign wealth fund, Hiro Mizuno gives insight into why GPIF no longer supports equity short selling (although still ok for bonds), stewardship in passive investing and the short term vs long term. He argues no such thing as a free lunch and that short term lending revenue needs to be weighed up against longer term stewardship value.
Interesting challenge to investors. From FT interview with the CIO:
How, as a fiduciary, can you make that call? You’re forgoing [a lot of] revenue because of this decision. Are you going to make that back long-term in performance gains?
HM: This is a decision between making cash immediately or being better stewards for our constituency. Being good stewards, we create an environment in which corporate executives can focus on long-term value creation, rather than paying attention to how to make their short-term quarterly performance targets. So, the judgment is between cash now on one side, and a more qualitative, holistic, long-term benefit on the other, which not many people can actually see. That’s exactly why we spent such a long time debating internally as well as with our governance board. A lot of asset owners think lending is a free lunch and I think there is no free lunch in the real world. We are making this profit at the expense of some other risk. But, the thing is, we are not aware of what it is.
More here: https://www.ft.com/content/e71a387a-1c5c-11ea-97df-cc63de1d73f4