The Supreme Court may need to intervene in a case concerning BlackRock’s subsidiary, iShares, as ETF investors say BlackRock are keeping too much of the proceeds from their securities-lending business.
The US Supreme Court has been asked to consider a claim made against BlackRock Inc., which has been accused of retaining excessive proportions of profits obtained by lending securities held by its exchange-traded funds (ETFs). This case has been reopened, due to a high court petition initiated by two ETF clients: The Labourers’ Local 265 Pension Fund, and The Plumbers and Pipefitters Local No. 572 Pension Fund.
The issues surrounding this case are taking on a broader significance, following the release of findings by research and consulting firm ETFGI on ETF investment growth. According to ETFGI’s recent research, throughout 2014 the ETF industry (and more broadly, ETPs) in Europe gathered a record level of $62 billion in net new assets (NNA). It is expected that the European ETF/ETP industry will break through the $500 billion milestone in 2015.
Deborah Fuhr, managing partner of ETFGI, says: “The record level of $62 billion of net new assets gathered by ETFs/ETPs in Europe in 2014 demonstrates that ETFs have become a preferred tool for many types of investors”. The research also establishes iShares as the biggest provider of ETFs, with a current market share of 46.2%.
As BlackRock facilitates securities lending – the temporary transfer of assets from ETF investors to third parties for a fee – this upsurge in annual ETF investment could lead to increased profits by expanding the scope for such opportunities.
The pension funds involved in the case claim that BlackRock subsidiary iShares charged their ETF investors a fee “disproportionately” larger than the industry norm, simply for acting as a middleman between the funds and the institutions borrowing the securities. They strongly believe that current fee levels are compromising investor returns.
Such claims were originally unsuccessful in 2013, and later dismissed a second time by an appellate court in September 2014. The latter court decided that the claim could not proceed, partially because the securities-lending practices adopted by BlackRock were approved by the Securities and Exchange Commission.
Although the appellate court also based its decision on the judgment that there was no legal justification for questioning the fees, the pension funds involved in the current appeal claim that other appellate courts have found in favour of similar lawsuits. BlackRock nevertheless continue to claim that there is no merit behind the lawsuit, as confirmed by their spokeswoman, Tara McDonnell.
Supreme Court May Intervene in BlackRock’s iShares Case
The Supreme Court may need to intervene in a case concerning BlackRock’s subsidiary, iShares, as ETF investors say BlackRock are keeping too much of the proceeds from their securities-lending business.