Musk vs Fink
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Friday, October 05, 2018

Musk vs Fink

A high profile manufacturing and tech entrepreneur is going after Larry Fink and his team (and much of the rest of the passive investing world) over securities lending.

Last night, in a Twitter exchange calling making short selling illegal, Tesla CEO Elon Musk attacked "index managers like BlackRock" for making "excessive profit from short lending while pretending to charge low rates for 'passive' index tracking." Musk named no other asset managers in the thread.

"There is no rational basis for a long holder to lend their stocks to shorts, as it dilutes the shareholder base & gives the short a strong incentive to attack the company by whatever means possible, including regulators," Musk wrote. "Where this breaks down is in passive index funds, which constitute most of the market. The holders of those funds, mostly small investors & retirement funds, don't realize that their stocks are being lent to short sellers, diminishing their true equity return."

Bloomberg and CNBC picked up on the celebrity CEO's salvo.

One reminder for Musk: index mutual funds and ETFs don't even represent a majority of all mutual fund AUM yet, never mind a majority of all stock holdings, so there's no way index funds "constitute most of the market." Or perhaps he means most of the market for securities lending to short sellers?

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