BlackRock is launching a stock lending programme that will see 37 of its retail funds lend out assets to generate performance-boosting fees.
The programme starts on January 17, 2011, and will include the £2 billion UK Absolute Alpha fund and the £1.6 billion UK Dynamic fund.
It also includes the £1.1 billion Special Situations fund, the £640m UK fund, the £639m Cash fund, the £544m Cautious Portfolio fund and the £501m UK Income fund.
The technique takes advantage of the need of other market players such as hedge funds to borrow stocks in order to short sell them, for example.
Tony Stenning, a managing director, says: “The borrower pays a fee for the loan of the securities which provides the fund with some additional income.” (article continues below)
He says 60% of the income goes to the funds and 40% goes to lending agent BlackRock Advisors. Funds that have previously carried out stock lending will get a 70% cut under a continuation of the previous agreement.
The firm says the borrowers will be obliged to hand over collateral in case they collapse and fail to return the stocks.
Stenning says: “There remains the very slight risk of loss should the borrower go out of business before the securities are returned and, due to market movements, the value of collateral held has fallen and/or the value of the securities on loan has risen.”