Securities lending

Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

With Securities Lending there is a risk of loss should the borrower default 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.

Frequently asked questions

What is securities lending?

Securities lending involves the owner of shares or bonds transferring them temporarily to a borrower. In return, the borrower transfers other shares, bonds or cash to the lender as collateral and pays a borrowing fee. Securities lending can, therefore, be used to incrementally increase fund returns for investors.

Not all funds are permitted to lend securities – refer to the Key Investor Information Document (KIID) and the fund prospectus to see whether your chosen funds can or cannot.

How does it work?

Securities lending involves a transfer of securities to a third party (the borrower), who will provide the lender with collateral in the form of shares, bonds or cash. The borrower pays the lender a fee – typically monthly – for the loan and is contractually obliged to return the securities on demand, or at the end of the agreed loan period.

Essentially, the lender retains all ownership rights of the security. The borrower will pass to the lender any dividends/interest payments that accrue. In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.

How do fund investors benefit from securities lending?

Investors can benefit from securities lending in the form of better performance. How? The fund can generate additional income through the fees that it charges for lending securities. This additional return can help offset management fees, for example.

How much do investors benefit from securities lending?

The performance contribution from securities lending varies by fund and asset class.

BlackRock periodically benchmarks its securities lending performance versus competitors using data from independent third-party providers. Over more than three decades, BlackRock has utilised securities lending to focus on delivering competitive returns while balancing return, risk and cost.

What about the risks? 

As with all investment strategies, lending securities involves risk that needs to be considered. The main risks are that the borrower becomes insolvent and/or that the value of the collateral provided falls below the cost of replacing the securities that have been lent. If both of these were to occur, the lender would suffer a financial loss equal to the difference between the two.

Other potential risks include the following:

  • The lender suffers a loss on the re-investment of the cash collateral.
  • The securities being lent are delivered to the borrower before the collateral is received.
  • The lender’s legal agreement does not provide full protection in the event that the borrower defaults.

Fund managers must also consider other non-financial risks, such as ethical or reputational risks which can sometimes arise due to unforeseen events, or when investments do not perform as anticipated.

What makes BlackRock’s securities lending different?

We believe managing our securities lending operations in-house, on our proprietary platforms, is preferable to outsourcing this important function to third parties, as some other investment managers do. To that end, we have built a robust infrastructure to help ensure that every element of our lending activity is executed in our clients' best interests and with prudent risk management. Since BlackRock’s lending programme started in 1981, 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.

BlackRock’s unparalleled risk management capabilities, proprietary technology, and stringent management processes sets our securities lending practices apart.