Lothian Pension Fund, Edinburgh, will automatically recall shares out on loan so fund executives can vote the entire holding of any stock at annual general meetings.
The £8 billion ($9.9 billion) local government pension scheme signed up to an automated proxy support service from Northern Trust, the pension fund's custodian. The move means the recall of Lothian's outstanding stock on loan will be automatically triggered by company meeting announcements.
The pension fund's average balance on securities out on loan and collateralized over the past year has been more than £300 million, said Albert Chen, portfolio manager for the pension fund.
Recalling loaned out stocks in order to vote the shares has been "logistically challenging" in the past, Mr. Chen said. "We had been looking at potential solutions so when Northern Trust offered this new automated solution we jumped at the opportunity to get involved." The custodian and Lothian began discussing an automated service late last year.
Lothian already retained 5% of a shareholding so executives could vote on any given stock. This 5% is still retained outside the securities lending program in case a borrower fails to return a stock when required.
"Northern Trust will now recall stock in advance of annual meetings allowing us to vote the entire holding," Mr. Chen said.
Following the completion of Lothian's vote, the stock will be returned to the pension fund's lending program.
Securities lending generates "significant fee income for LPF, providing a boost to the long-term performance of the fund," CIO Bruce Miller said in a news release. Mr. Chen said demand for stock lending varies "and so we are unable to forecast" any earnings sacrifice with confidence.