Japan's ¥161.8 trillion ($1.49 trillion) Government Pension Investment Fund effectively raised the bar for fiduciary stewardship standards with its Dec. 3 decision to suspend the stock-lending program it introduced in 2014 for international equities.
Temporarily giving up ownership rights when stock is lent out conflicts with GPIF's responsibility to exercise its stewardship responsibilities for an international equity portfolio that had grown to ¥42.5 trillion as of Sept. 30, the fund explained in a news release posted on its website.
That decision will cost GPIF more than $100 million a year in lost revenues, according to the Tokyo-based giant's most recent annual report. For the three fiscal years through March 31, 2019, GPIF garnered $345.7 million from lending out its international equity holdings— $115.2 million a year on average — an amount equivalent to three-quarters of a basis point of the broader portfolio's value.
The fund predicts the payoff from stronger governance and stewardship will more than compensate. "While it's true that over the short term the fund will be foregoing lending revenues, the deeper level of engagement this move makes possible should boost market growth and sustainable returns over the long run," said Naori Honda, a Tokyo-based spokeswoman for GPIF.