Defined Contribution

Securities lending:
What’s in it for participants?

Feb 11, 2019
By BlackRock

Over 80% of BlackRock clients’ DC assets are in lending funds1 as plan sponsors seek to trim fees and boost return.

Today, with new regulations and greater transparency since the financial crisis, securities lending activity has reached its highest level in a decade2 with more than $19 trillion in assets available for lending globally.3 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.

What’s in it for participants?

Income generated through securities lending may help offset some investment management fees. Lower fees may help participants keep more of their investment return.

What’s in it for plan sponsors?

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 every fund that has participated in securities lending since our program’s inception in 1981.

How does it work?

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 fund with the objective of preserving principal and liquidity while generating income.

What are the risks?

There are two primary risks in securities lending: the inability of a borrower to return the security and potential losses from the reinvested collateral.

What is BlackRock’s approach?

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.

Download now