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Mark Gilbert

This $1.6 Trillion Fund Says Short Selling Is Wrong

The world’s biggest pension fund has decided lending its shareholdings to traders speculating on lower prices isn’t in line with its long-term mission.

Taking the long view.

Taking the long view.

Photographer: Tiffany Hagler-Geard/Bloomberg

Japan’s Government Pension Investment Fund has been a trailblazer in promoting the need to incorporate environmental, social and governance issues into the day-to-day job of portfolio construction. With $1.6 trillion under management, it has a lot of firepower in the investing world. So its recent stand against short selling, judging the practice to be incompatible with its role as the long-term custodian of multigenerational assets, is worth paying attention to. 

In a short sale, a trader borrows stock from a broker or bank and sells it at the prevailing market price, betting that a decline will allow him or her to return the shares to the lender after repurchasing them at the new, lower value and pocketing the difference. For the trade to work, some owner of the shares has to be willing to lend them to the short seller.