https://www.wsj.com/articles/fideli...gers-to-profit-from-short-sellers-11619607644 Fidelity Launches Platform For Fund Managers To Profit From Short Sellers 0 BY JOHN R. ON APRIL 28, 2021INVESTMENT FUNDS Fidelity Investments Inc. is developing a business that helps fund managers profit from those who are willing to bet against stocks. Fidelity announced this week that it is launching a platform for fund managers wishing to lend their holdings to other investors, including short sellers. Fidelity’s move is the latest sign that the money management industry, which once dismissed the company as unnecessary and even a little improper, has come full circle. Securities lending has become an important source of additional income, maximizing returns and preventing clients from retreating to cheaper investments. The Boston-based company launched its securities lending business in 2019, acting as an agent for the company’s own family of funds. The company is now extending these services to other asset managers. Fidelity Agency Lending is part of the company’s financial markets group and employs over 90 people. “With pressure on fees and returns, securities lending is a good way to generate low-risk returns for your shareholders,” said Justin Aldridge, Unit Head. The income generated by these loans increases the returns of the funds, which helps their managers to attract more money from clients. As a loan agent, Fidelity in turn retains a share of this income. Lending a large cap stock can increase a fund’s return by 0.01% to 0.02%. Lending to less liquid stocks, and especially those in high demand, could add 0.25% to 0.30%, Mr. Aldridge said. Fidelity’s foray comes at a difficult time for short sellers. Company executives and shareholders of their companies have long criticized them for driving down stock prices and focusing too much on short-term results. Many of these traditional adversaries have also recognized the role of shorts in markets and in exposing corporate fraud. Earlier this year, however, an army of individual investors took to online messaging forums to rally around GameStop. Corp. and other companies frequently targeted by short films. In their attempt to drive up stock prices, angry traders pilloried short sellers. Some well-known short films, including Andrew Left of Citron Research, have been targeted with offensive and threatening texts. Mr Left has since said he will stop publishing research on short selling. Mr Aldridge argued that most of the income that fund managers earn on their securities lending goes to investors in those funds in the form of higher returns. “The main person who benefits from this is the shareholder,” he said. Industry-wide securities lending revenues grew steadily in the years following the financial crisis and in 2018 exceeded $ 10 billion, according to IHS Markit. Annual revenues totaled $ 9.3 billion in 2020, down 7% from the previous year, with low interest rates limiting loan income. Fidelity has a long history in securities lending, serving for years as a broker for hedge funds and other sophisticated investors looking for stocks to borrow and helping its own brokerage clients to lend their securities. Fidelity’s own family of investment funds used the Goldman Sachs group Inc. as a loan agent until 2019, paying the investment bank 10% of the income it received from securities lending. The firm aspired to retain a larger share of that revenue and had been in talks with U.S. securities regulators about the plan for nearly a decade. In 2019, he found a way forward. Fidelity “took guidance from the Securities and Exchange Commission,” a spokeswoman said, and started its own lending business that year to serve company funds. Rivals BlackRock Inc. and Vanguard Group also serve as loan officers for their own funds. While the move will help offset the fee reductions Fidelity has made to its rapidly growing line of index funds, the company believed its actively managed funds would stand to gain even more. “We thought of it more as an advantage for active funds than index funds,” Abigail Johnson, chief executive of Fidelity, told the Wall Street Journal in an interview that year. “You need active funds to get a wider variety of stocks because index funds are all in the same things.” With its final step, Fidelity will now compete with Goldman, State Street Corp. , JPMorgan Chase & Co. and other banks in managing the loan programs of other asset managers. The company’s digital platform allows fund managers to define personalized settings for each individual security in their portfolio. Mr. Aldridge said Fidelity’s service will give managers more control over what securities they lend and when. For example, a portfolio manager may want to limit lending on certain stocks before voting at shareholder meetings.
it has always been a difficult scenario for short sellers. The universe of stock available to short has always been much smaller than the universe of stock available to go long. resulting in short squeezes which have nothing to do with fundamental value of the company.
Do I remember correctly that back in the day the rate for shorting a stock was just the general margin interest rate? Not this thing where it could be any rate, based on how many shorting and willing to lend their long securities?
SPY is like the equivalent of the common dollar bill. Its everywhere I doubt you would get much loaning it out.
Oh I was just meaning generally. I don't short a lot (and when I do I get burned, GME lol), but I remember thinking years ago that the short interest rate for any stock/ETF pretty much was the same as the margin interest rate. I could have been totally wrong about that.