Income generated through securities lending may help offset some investment management fees.
Through the reduction of costs and fees through securities lending, additional value from participant portfolios can be unlocked and may also help plans meet their fiduciary obligations.
There are two risks to consider – the inability of a borrower to return the security and potential losses from the reinvested collateral.
Over 85% of BlackRock clients’ defined contribution (DC) assets are in lending strategies as plan sponsors seek to trim fees and boost returns.1
Today, with new regulations and greater transparency since the financial crisis, securities lending activity reached approximately $38 trillion in assets available for lending globally in 2024.2 Many plan sponsors who did not participate in lending following the financial crisis are reexamining this longstanding practice as a way to unlock additional portfolio value for their participants.
Income generated through securities lending may help offset some investment management fees. Lower fees may help participants keep more of their investment return.
Reducing costs and fees through securities lending can unlock additional value from participant portfolios and may help plans meet their fiduciary obligation. BlackRock has a long-term track record of generating positive monthly lending income for strategies participating in securities lending. Since our program’s inception in 19813, only three borrowers with active loans have defaulted. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to our clients.
Our new guide offers more detail, but here are the basics of securities lending: a large financial institution borrows a security in exchange for collateral in excess of the security’s value. Acceptable collateral may include cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. government. Cash is the most common form of collateral in the U.S. and may be reinvested in a short-term investment strategy with the objective of preserving principal and liquidity while generating income.
There are two primary risks in securities lending: the inability of a borrower to return the security and potential losses from the reinvested collateral.
BlackRock’s securities lending program is integrated into the firm’s global portfolio management functions including research, trading, technology and risk management. BlackRock’s stringent standards seek to protect clients even beyond newly tightened regulations by:
- Assessing borrower creditworthiness against highly conservative standards and engaging with only well-capitalized, high-quality institutions.
- Investing cash collateral in high-quality, short-term securities with the objective of preserving capital and liquidity while generating income
Every element of our lending activity is executed as a fiduciary, in our clients’ best interest, and with prudent risk management. To learn more about what securities lending can do for your DC plan, download the guide below.
This type of plan includes direct lending, multi-asset credit, and private real estate. As of 2024, 80% of BlackRock clients’ defined contribution (DC) assets are in lending strategies as plan sponsors seek to trim fees and boost returns.4
We believe in managing our securities lending operations on our proprietary platforms, rather than outsourcing this important function to a third-party. To that end, we have built a proprietary securities lending infrastructure so that lending activity is executed in our clients’ best interests and with prudent risk management.
In lending, a fiduciary is a person or institution responsible for managing another party’s assets or funds with the utmost care and loyalty, prioritizing the best interests of the beneficiary (borrower) above their own, and acting without conflicts of interest when making lending decisions.
People have never been more challenged with how to spend down their retirement savings. A range of new solutions are emerging to help answer those needs.
Participants may look to borrow from their retirement plans during times of economic turmoil. We offer some guidelines to consider should they decide to do so.
1 SEC, BlackRock Credit Strategies Fund, 2024
2 S&P, Securities Finance, 2024
3 Includes time before BlackRock was founded
4 SEC, BlackRock Credit Strategies Fund, 2024
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