Thursday, March 31, 2011
When is income not income?
I conducted a GIPS(R) (Global Investment Performance Standards) verification for an asset manager whose clients get income from stock lending. The option to engage in stock lending is one that the client enters into with their custodian; the manager typically has no involvement at all, other than to purchase securities which someone wants to short, which therefore necessitates the borrowing of shares and the receipt of income.
Therefore, this income should not be recorded as interest income (which would benefit the manager for something they aren't responsible for) but rather should be treated as a cash flow. Sorry :-(