SecuritIes lending is an activity that matters for Ucits funds, especially ETFs. These cheap index trackers have been predicted to use revenues from securities lending so they can drop their fees to zero for some of the more common asset classes.
But since the financial crisis, the activity has become dogged by issues, such as the loss of securities used in lending deals; questionable splits of profits; and a lack of transparency. Securities lending and mutual funds became estranged while regulators have crusaded for better investor protection.
It could be argued, though, that the stronger regulatory environment now has reduced risks and – through transparency – increased profits for Ucits participants. Certainly some funds do see value in securities lending (see our roundtable article).
The securities lending industry wants changes that would allow Ucits funds to partake in lending with more ease, like sovereign wealth funds do. So, would it be a good thing for ETFs to become greater participants? After reading our report, you can make your own mind up!
Nick Fitzpatrick, group editor, Funds Europe
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