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BlackRock faces US court battle over iShares lending revenue

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BlackRock faces US court battle over iShares lending revenue

Two US pension funds have filed a lawsuit against BlackRock alleging the asset manager has ‘looted’ securities lending revenues generated by a range of its iShares exchange traded funds (ETFs).

The suit states the pension funds are seeking to recover the portion of securities lending revenues that ‘were improperly spent by iShares’ management on grossly excessive compensation to securities lending agents affiliated with iShares,’ according to New Model Adviser® sister publication Wealth Manager.

The pension funds have alleged securities lending affiliate the BlackRock Institutional Trust Company (BITC) was able to take ‘at least 40%’ of the revenues, alleging the fee structure was ‘designed to loot securities lending returns properly due to iShares investors’.

Wealth Manager cited a source close to the situation as claiming the revenue split in the US is 65% to the investor and 35% to BlackRock. In Europe the split is 60% and 40%.

A spokesperson for BlackRock said: ‘Our securities lending program has delivered above average returns to our ETF shareholders over time. To achieve this, we run the program ourselves while bearing all the costs, rather than outsourcing to third parties as others do.

‘iShares has a long record of delivering the returns our ETF investors expect, and securities lending is one of the tools we use to help ensure our funds efficiently track the performance of their underlying indices.  The complaint is without merit, and we will contest it vigorously.’

In Europe, regulators are clamping down on the practice of securities lending, with new guidelines from the European Securities and Markets Authority requiring firms to return all revenues from securities lending, net of operational costs, to investors.

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