The Future Fund chair David Murray has called for a re-think on stock lending.  

"The Future Fund does not use stock lending. I cannot understand how any institution is prepared to lend a stock and then have it trashed," Murray said.

Speaking at a Mercer briefing yesterday, Murray said the practice of stock lending should be reviewed.

"I always believe that you must never use anything your mother cannot understand. There should be a re-think of the use of stock lending in the market," he said.

The Australian Institute of Superannuation Trustees (AIST), which represents the $450 billion not-for-profit sector, said securities lending is a legitimate practice which can earn valuable returns for funds.

"We acknowledge there are risks involved with securities lending. Whether a trustee is prepared to lend their securities is a matter ultimately for them," AIST chief executive Fiona Reynolds said.

Murray said sovereign wealth funds were positioned to offer better returns than pension funds.

"Sovereign wealth funds are better-placed to get better returns. They only report to one master. Trustees [of pension funds] are faced with heavy fiduciary responsibilities. A trustee has to consider the interests of other trustees as well as the fund's sponsor, the employer. This is particularly the case for defined benefit funds," he said.

"This sort of governance structure could potentially dumb down their returns."