Mutual fund boards that use an affiliated manager for securities lending had better prep for more scrutiny. Jason Zweig uses his perch at the Wall Street Journal to tout
an academic study
that explored whether funds are getting the full value of their security lending.
The study found that funds rely on a lending agent affiliated with the fund manager rather than an independent third party earn less income from securities lending. On average, those funds earn 70 percent less.
"Fund boards should question why they are using a lending agent affiliated with the manager and whether the lending could be more profitable if done by the fund itself," concludes Zweig.
John Adams, a professor at the University of Texas, Arlington and the study's author does admit that: "For some funds, that may not be practical, but they should at least be asking those questions." Adams also wonders whether some fund managers are using the securities lending programs to benefit themselves more than their shareholders.
The article reports that the typical mutual fund retains between 65 percent to 85 percent of revenue generated from securities lending. The agent keeps the remainder.
One dissenter to the study is Christopher Kunkle, director of securities lending and market risk at the Risk Management Association (Philadelphia) who says that the differences in income typically derive from differing policies and guidelines at mutual funds.
Zweig doubts that calling a fund firm will get many answers. In the end, he appears to be calling for more transparency.
Sean Hanna, Editor in Chief
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