The U.S. Securities and Exchange Commission has allowed BlackRock‘s mutual funds and money-market funds to borrow up to a third of their assets in total – or up to 10 percent of assets without posting collateral.
BlackRock’s «InterFund Program» is an internal program in which funds with excess client redemptions could temporarily borrow money from other BlackRock funds with extra cash.
Other firms such as Vanguard Group and Fidelity Investments have already been allowed to use similar schemes. Besides providing more flexibility, the firm explains that borrowing through the program could be less expensive than using credit lines for the borrowing fund and give higher returns than money market instruments to the lending fund.
In its June application, BlackRock noted that «At any particular time, those Funds with uninvested cash may, in effect, lend money to banks or other entities by entering into repurchase agreements or purchasing other short-term money market instruments. At the same time, other Funds may need to borrow money from the same or similar banks for temporary purposes, to cover unanticipated cash shortfalls such as a trade “fail” or for other temporary purposes.» Specifying that «certain Funds may borrow for investment purposes; however, such Funds will not borrow from the InterFund Program for the purposes of leverage.”
Lord Abbett also filed an application for interfund lending in 2015.