Share lending shortcomings

Among the benefits of using an SMSF as a retirement savings vehicle is the direct ownership of the fund's assets.

This is not the case with public offer commercial and industry funds or wrap accounts where the fund assets are held in the names of custodians engaging in share and other securities lending.

Apart from the ethical issues raised by assisting short sellers to reduce the value of shares owned by the super fund, there is the question of the security of the borrower and the risk of loss if the shares are not returned. The GFC highlighted there are many things that can go wrong and generate losses or extended legal battles to achieve the return of the lent shares.

The collapse of Lehman Brothers, an institution considered too big to fail, illustrates the potential risks.

Moreover, super fund investors have no guarantees that their custodians' lending collateral requirements will protect them in all situations.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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