Lord Abbett and BlackRock both recently filed applications with the SEC to implement a program that would permit lending between funds. To implement interfund lending, the SEC must grant an exemption from certain rules that prohibit transactions between related funds. Fourteen such programs have been approved by the SEC since 2008.
According to the applications, the lending facilities are intended to assist funds in meeting redemption requests or covering other instances of cash shortfall, such as those brought about by settlement fails. The applicable interest rate charged to a fund would be based on the average of the highest overnight repo rate available and an approximation of the lowest short-term interest rate available to the funds via bank credit. The funds’ board would be responsible for setting a formula to determine the bank rate, approving any subsequent modifications to the formula, and overseeing the program for fairness to the funds. The applications note that funds accessing the interfund lending facility would only be able to borrow up to 10 percent of a fund’s total assets on an unsecured basis and lending funds may only lend up to 15 percent of total net assets.