Tesla’s (NASDAQ:TSLA) Embattled CEO, Chides Funds That Lend Shares to Short-sellers
$TSLA, $BLK, $VTI
Accused by Tesla’s (NASDAQ:TSLA) CEO Elon Musk of making “excessive profit” by lending shares to *Short-sellers, Top index fund companies shot back Friday that they are only looking out for their investors.
The responses from BlackRock Inc and Vanguard Group came after Mr. Musk criticized the index fund providers on Twitter, part of his long-running grudge with Short-sellers betting that shares of his niche EV maker will fall.
Securities lending is a significant source of extra returns for fund firms, a function they were quick to defend against Mr. 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 .
*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.
BlackRock, Tesla’s 8ht-largest shareholder, reported total securities lending revenue of $597-M in Y 2017, compared with $579-M in Y 2016, according to a securities filing.
Mr. Musk cited the latest figure in a Tweet Friday afternoon.
BlackRock is the world’s largest asset manager, running a total of $6.3-T as of 30 June, followed by Vanguard with more than $5-T under management.
Vanguard spokeswoman said that the firm’s securities lending program “is a source of additional income that can enhance returns for our shareholders.”
She also pushed back on another point Mr. Musk made on Twitter, when the CEO wrote that there is “no rational basis for a long holder to lend their stock to shorts,” who can attack the company and drive down total returns.
“Short selling provides greater price transparency and liquidity to the market,” she said. She noted market participants could also borrow securities for other needs like custody or brokerage functions.
A Tesla spokesman declined to comment.
In his Twitter post Friday Musk also said “companies like BlackRock keep up to 50% of short interest revenue.”
BlackRock spokespeople pointed to filings and company disclosures that showed retail investors receiving around 71.5% or more of securities lending income, and said the revenue splits are fully disclosed to clients.
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