Vanguard, BlackRock
Vanguard Group and BlackRock Inc., the other titans of index funds, already run their own lending operations. Vanguard gives almost all the revenue -- 98% --to shareholders, according to Morningstar. At BlackRock, the figure is about 69%. Spokesmen at Vanguard and BlackRock declined to comment.
Investors in the Fidelity Extended Market Index Fund benefited from its lending, which included shares of Tesla Inc., a popular short. The total loans equaled about 14% of the fund’s $23 billion of net assets at the end of February, according to a filing. It earned about $27.6 million of lending revenue during its last fiscal year, more than double its expenses.
A representative for Goldman Sachs Bank USA, one of the biggest securities lending agents for mutual funds and insurers, declined to comment. The bank arranges and administers securities loans for mutual funds run by Putnam Investments, Russell Investments and Charles Schwab Corp., among others, according to the most recent filings.
Firms sometimes pay a high price to borrow securities. In addition to putting up collateral, they are charged an interest rate when borrowing stocks in high demand by short sellers.
Priciest Short
Tilray Inc., a Canadian developer of cannabis-based drugs that went public in July at $17 a share, was the most expensive stock to borrow last year, according to IHS Markit Ltd. When the shares soared above $200 in late September, firms borrowing the stock paid a daily interest rate of almost 1% on the loan, or more than 300% on an annual basis, said Sam Pierson, IHS Markit’s director of securities finance.
Fidelity’s brokerage will use automated third-party software to allocate loans to a pre-approved list of borrowers provided by the mutual fund giant, according to the March filing. It also purchased insurance to mitigate risks posed by borrower defaults.
“Only the largest fund complexes typically can support” their own securities lending business, said William Pridmore, a consultant to institutional investors. “It really does take an infrastructure.”
This article provided by Bloomberg News.