Arrangements for how the income generated from securities lending should be shared between investors in a fund, the fund manager and lending agents vary widely. The European Securities and Markets Authority (ESMA) believes that all income, net of fees, should, “as a general rule”, be returned to the fund rather than being shared by the fund and the fund manager. Both the European Fund and Asset Management Association (EFAMA) and the International Securities Lending Association (ISLA) disagree with the proposal.
Kevin McNulty, chief executive of ISLA, said a revenue-sharing arrangement was better for fund investors than charging a flat fee, as it ensured lending activity would be profitable for the fund. Were ESMA to go ahead with the proposal, it would harm ETF providers like BlackRock who play a key role in securities lending. In EFAMA’s view, fee-sharing agreements between a UCITS fund and the management company should be allowed, given that managers incur costs in providing securities lending services and should be able to recoup these costs by receiving a slice of the revenue raised.
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