Reuters: Under fire from Musk, top fund firms defend securities lending

Accused by Tesla Inc Chief Executive Elon Musk of making “excessive profit” by lending shares to short-sellers, top index fund companies shot back on Friday that they are only looking out for their investors.

The responses from BlackRock Inc and Vanguard Group came after Musk criticized the index fund providers on Twitter, part of his long-running grudge with short-sellers betting that shares of his electric carmaker will fall.

Securities lending has emerged as small but significant source of extra returns for fund firms, a function they were quick to defend against Musk’s Twitter comments.

“BlackRock engages in securities lending to provide fund investors the ability to collect higher returns than they otherwise would receive,” BlackRock said in a statement sent by spokesman Brian Beades.

Short-sellers borrow stock and sell it into the market in hopes of buying it back at a lower price later and pocketing the difference, creating a market for securities lending by fund firms who split revenue from the activity with their own investors.

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