Published February 03, 2013
NEW YORK – Two U.S. pension funds have alleged in a lawsuit that Blackrock, the world's biggest asset manager, has looted securities lending returns from iShares exchange-traded funds investors, and breached its fiduciary duties.
In the suit, the pension funds allege that several iShares ETFs spent funds on "grossly excessive compensation" to agents affiliated with the ETFs, as well as on other agents, and they want to recovery the funds for investors.
Blackrock's iShares ETFs have "systematically violated their fiduciary duties, setting up an excessive fee structure designed to loot securities lending returns properly due to iShares investors," they say in the suit, filed on January 18 in the Middle District Court of Tennessee.
The Laborers' Local 265 Pension Fund of Cincinnati and the Plumbers and Pipefitters Local No. 572 Pension Fund of Nashville further allege that Blackrock officials and the iShares ETFs ran a scheme to take at least 40 percent of securities lending revenues - which they called "entirely disproportionate" - for themselves at the expense of investors.
Blackrock President Robert Kapito and iShares Chairman Michael Latham are named as defendants in the suit.
Representatives of Blackrock, the largest manager of ETFs, did not immediately respond to a request to comment on the suit.
The recently-acquired iShares unit has been a stellar performer for the New York-based asset manager, bringing in $36 billion of new business for Blackrock in the fourth quarter.
(Reporting by Jonathan Spicer; Editing by Marguerita Choy)