Funds engage in securities lending as a way to generate extra revenue. The holder temporarily transfers the security to another investor in exchange for collateral. [How ETF Securities Lending Works]
“The two pension funds allege that BlackRock officials and the iShares ETFs ran a scheme to take at least 40% of securities lending revenues – which they called ‘entirely disproportionate’ – for themselves at the expense of investors,” Reuters reports.
BlackRock over the weekend said the complaint was without merit, adding it will “contest it vigorously,” according to the article.
BlackRock said its securities lending program “has delivered above average returns to our ETF shareholders over time,” according to a Financial Times report. “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.”