Danish pension funds at odds on equity lending

Three of Denmark's 12 largest pension funds lend their equities to foreign hedge fund managers wanting to short equities, according to a survey by Danish investor magazine Aktionæren.

Pharmaceutical company Bavarian Nordic is the second most shorted Danish equtiy, according to Danish media Økonomisk Ugebrev Formue. 8.80 percent of the equtities are currently shorted. This most shorted is the industrial firm NKT | Photo: Betina Garcia/Scanpix

When a hedge fund manager wants to short an equity to create a return on a falling share price, they first need to identify an investor willing to lend that stock.

Some of the largest holders of equities are pension funds, making them obvious targets for short-selling hedge fund managers looking to borrow securities.

In Denmark, though, the major pension funds disagree on whether to lend their equities or not, according to a survey conducted by Danish investor magazine Aktionæren, which polled 12 pension funds on their lending policy.

The only pension fund to have its entire equity holding available for lending is PKA. Pensiondanmark and Sampension also responded saying they have some of their equities available for lending -- however, only to some extent. The remaining nine pension funds have a policy of not lending stock.

When a pension fund lends its equities to short sellers, they receive a fee, however, this comes with two risks: The short seller may lose money on the investment, and if the pension fund wants to sell the equity during the lending period.

See the box below for the pensions funds' responses:


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