What is Securities Lending?
An agreement between a lender (CalSTRS) and a borrower to transfer ownership of a security temporarily, in exchange for collateral, in order to earn additional income.
Who Generally Lends and Why?
Large institutional investors who wish to earn incremental income on their long-term holdings.
Who Generally Borrows and Why?
Broker/dealers, market makers and hedge funds that are looking to provide liquidity, facilitate investment strategies and to provide risk reduction for failed settlements.
The Securities Lending Program, which was established in 1988, represents CalSTRS’ first non-core investment program. It was designed to enable the Teachers’ Retirement Fund to use its existing asset base and investment expertise to generate a steady source of incremental income, adding over four basis points to the entire fund on a regular basis over the long-term. While this income is not risk-free, processes have been put into place to help mitigate the risks associated with securities lending. In addition, program staff working closely with the Corporate Governance team to develop/streamline processes to facilitate the return of CalSTRS’ shares to vote as proxy voting is a priority within our organization.
CalSTRS’ size and presence in the capital markets make it a prime resource for securities lending. Generally, up to 70 percent of the CalSTRS Investment Portfolio is considered “lendable,” in that it includes assets such as equities and fixed income, which are in demand by borrowers on a regular basis. During the past year, approximately 19 percent of the fund’s lendable assets were on loan, which compares favorably to our peers.
The management of the CalSTRS Securities Lending Program is shared by a team of four investment professionals within the Fixed Income unit. The Operations unit is also instrumental to the process by performing the compliance function, and the Corporate Governance team acts as a further resource in regards to proxy voting. The Director of Fixed Income oversees the management team, develops and recommends program structure changes, and ensures adherence to Board-approved policies.
CalSTRS Lendable Assets by Asset Class
$122.78 Billion (Currently, 65 percent of total plan assets are lendable)
December 31, 2014
CalSTRS Assets on Loan
$23.26 Billion (19 percent of lendable assets on loan)
December 31, 2014