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ABP & PGGM curb stock-lending to combat volatility

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NETHERLANDS – Dutch pension funds ABP and PGGM, which have combined assets of almost €200bn, have announced joint action to suspend all stock-lending activity for short-selling in order to help combat market volatility.

However, Benedita Cochena, investment spokeswoman for PGGM in Zeist, says the move is only temporary and doesn’t represent any long-term changes to the investment strategy of either fund.

“We hope to be able resume full stock-lending activity as soon as possible. We got together and took this initiative because both ourselves and ABP feel a good deal of the players involved in short-selling, and we’re not just talking hedge funds, are in it for speculative aims and this could be very damaging in the long run,” she comments.

From a financial perspective, the suspension represents an immediate loss of €500m for PGGM, but Cochena says this is not an area for concern. “It’s a drop in the ocean really. Even though it represents 5% of our total equity portfolios, we are confident the money can be regained long-term.”

“The real worry for us, and hence the suspension, is the psychological effect that continued market volatility will have on investors and their attitudes to short-selling,” she adds.

The two funds hope their action will have a knock-on effect, not just in the Netherlands but further afield.

“We emailed the details of our initiative to 100 or so other pension funds throughout Europe. We are active internationally and the markets are global these days. We hope other funds will follow suit. That way we might induce some much-needed stability into the markets,” Cochena comments.

PGGM and ABP’s decision comes at the same time that the Financial Services Authority (FSA) in the UK has announced that it is to investigate the impact of short-selling on markets in decline and Cochena would like to see similar action taken by the Dutch authorities.

“It certainly wouldn’t hurt. Maybe our suspension of stock-lending will have an influence in that respect, too,” she says.

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