Pension funds accuse iShares management of taking ‘grossly excessive compensation’ in sec lending court case

Michael Glenister
BlackRock ‘siphoning off securities lending profits for the benefit of mutual fund managers’ according to a lawsuit filed by two US pension funds.

 

BlackRock has been ‘siphoning off securities lending profits for the benefit of mutual fund managers’ according to a lawsuit filed by two US pension funds.

Laborers’ Local 265 Pension Fund in Cincinnati, Plumbers and Pipefitters Local No. 572 Pension Fund in Nashville said the asset management firm’s exchange traded funds (ETFs) which operate under the iShares brand have ‘systematically violated their fiduciary duties, setting up an excessive fee structure designed to loot securities lending returns properly due to iShares investors.’

The lawsuit further accuses BlackRock of ‘arranging for affiliates of iShares to take at least forty percent (40%) of securities lending revenues for themselves at the expense of investors – a fee entirely disproportionate to the performance of those affiliates.’

The pension funds are seeking to recover funds which they claim are owed to them as iShares shareholders.

In a statement, 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." 

The full list of defendants named in the filing are as follows: iSHARES TRUST; iSHARES, INC.; iSHARES RUSSELL MIDCAP INDEX FUND; iSHARES MSCI EAFE INDEX FUND; iSHARES MSCI EMERGING MARKETS INDEX FUND; iSHARES RUSSELL 2000 GROWTH INDEX FUND; iSHARES RUSSELL 2000 VALUE INDEX FUND; iSHARES CORE S&P MID CAP INDEX FUND; iSHARES CORE S&P SMALLCAP INDEX FUND; iSHARES DOW JONES US REAL ESTATE INDEX FUND; BLACKROCK FUND ADVISORS; BLACKROCK INSTITUTIONAL TRUST COMPANY, N.A.; ROBERT S. KAPITO; MICHAEL LATHAM; ROBERT H. SILVER; GEORGE G.C. PARKER; JOHN E. MARTINEZ; CECILIA H. HERBERT; CHARLES A. HURTY; JOHN E. KERRIGAN; and MADHAV V. RAJAN.

Tags: iSharesBlackRock