`They told me you had been to her,
And mentioned me to him:
She gave me a good character,
But said I could not swim.
I gave her one, they gave him two,
You gave us three or more;
They all returned from him to you,
Though they were mine before.’
These verses from Lewis Carroll’s Alice in Wonderland are usually thought to be meaningless (Alice didn’t believe there was an atom of meaning in it), but they might not be a bad representation of fund management’s stock lending programmes.
RImetrics, which rates asset managers on their responsible investment policies, mentions in its most recent annual report “In the assessed group, 32 per cent of managers operated stock lending programmes and a quarter of these suggested that they did not disclose the returns gained from these activities to their clients”.
For a throwaway line, this is pretty big stuff surely? If I ask you to look after my widget and you then hire it out, surely you have at least a responsibility to let me know what you’re earning from my widget, if not to split the gains?
Even if the returns from stock lending are used to hold down management fees, surely this should be made clear to the investor? Does the fiduciary relationship not demand this much transparency? These asset managers are risking their “good character” whether or not they can swim.