The small fund management boutique, SCM Private blew the whistle this week on fund management groups that are lending shares in consumers’ pensions and ISAs for a profit without the share owners’ permission.
£850m are being profited by lending shares in this manner.
It is estimated the fees being earned by lending shares in such a manner add up to a whopping £850m. SCM Private studied 20 funds and discovered of those, 19 have made provisions to lend up to 100 per cent of their clients’ shares.
While some of the fees earned go to the client, it is far from the entire fee. For instance, the asset management firm BlackRock keeps 40 per cent of the fees earned. Others, such as Fidelity, only take enough to cover costs, with the rest of the fees going back into the fund to profit investors.
There are other concerns with the lending of shares. The majority of shares are being lent to hedge fund managers who use the borrowed stock to short the shares thereby making money by decreasing the price of the shares.
Hold long-term and make money short-term
Robin Geffen, founder of Neptune Investment Management, a company that does not lend its shares said: “When an investor gives you money, you buy the stock on the basis that you think it will go up. You don’t lend it to someone who takes the opposite position to you.”
Others disagree, arguing that if you are holding for the long term and can make some money in the short term lending to a hedge fund manager, it is unlikely to cause problems.
If you are wanting to know more about pensions and annuities then go to www.pensioncalculator.org which is the UK’s leading online resource for all things pensions to find the information you are after.