In an article published in the Financial Times on the 15th of November, Guillaume Prache, Managing Director of BETTER FINANCE, was quoted regarding the income money managers are making through securities lending.
BlackRock overhauled its securities lending division, making it cheaper for companies to borrow securities. The asset management firm cut the requested amount of collateral, scrapped a 50 per cent limit on securities lending for European funds and lowered the required collateral to 105 per cent of the value of the equities on loan, down from 220 per cent.
Asset managers are fighting for bigger shares of the equity-to-equity business, as low bond yields force them to look for alternative revenue sources. However, European regulation requires money managers to return the income gained from securities lending to the fund. Since BlackRock kept 37.5 per cent of the income from every single product carrying stock lending, Guillaume Prache said that he flagged the problem of asset managers not returning income to investors to ESMA, saying that “We believe Esma should investigate how its guidelines are implemented, and — in particular — how the profit [generated by securities lending] is calculated and what costs are being deducted from it by the fund manager”.
Read full article here.