Now many fund members have discovered their fund's assets are regularly rented out to various fund managers and hedge funds to facilitate short selling - that is, selling shares not yet bought in the anticipation the share price will fall. It allows them to buy the shares at the lower price and return the borrowed stock, having made a quick profit.

For many members this came as a shock. There were concerns about the ethics of the practice as well as the level of risk the lending strategy entailed.

Is this concern justified?

The body representing super fund trustees, the Australian Council of Super Investors, assures fund members they need not lose sleep. No super fund stock has gone missing after being rented, or forcibly sold by a third party. And the council claims there are benefits. One is the small rental fee of about 3 to 4 basis points, which adds to the return the fund earns.

And there is a more indirect benefit, says the council's president, Michael O'Sullivan. Short selling drives the price of stocks down but hedge funds that short sell can make money when the market is falling. That assists super fund members, too, if some of their money is invested with the hedge fund.

And eventually, he says, the share price bounces back.

This thesis will be tested over the next year or two as the bear market sets in.

However, O'Sullivan does have concerns about some types of short selling being teamed up with sharp market practices. So much so that the council and the Investment and Financial Services Association are urging more regulation to address those practices, after some share broker clients found they had lent shares to short sellers and were left carrying huge losses.

O'Sullivan dismisses concerns about not getting lent stock returned, as all funds have agreements with the borrower or short seller to return the shares by a specified date.

They can recall their shares at any time, can use them to vote on an issue and receive dividends, bonuses or rights issues, which accrue while the shares are out on loan.

The damage occurs when stock in highly leveraged companies is lent to short sellers who know that stock is particularly vulnerable and then proceed to drive the price down knowing it will lead to margin calls, forcing the share price into a downward spiral.

O'Sullivan is critical of how stock lending and short selling have been used to manipulate some shares and says this needs to be addressed by changes in outdated legislation.

The market, he says, should be kept fully informed of the extent of short selling in a particular stock.

That means disclosing all short sales of shares.

This includes both brokers who are registered with the stock exchange to short sell shares and who are required to report those transactions at the end of each day and other short selling transactions by traders who are not currently subject to the reporting obligations.

O'Sullivan would like to see a total figure of short sales in each company at the end of every trading day, so that the market is clear on how much stock has to be bought to cover the short selling.

He has also called for higher penalties to be imposed on those who break the rules.