Synthetic ETFs were the target on Wednesday of Laurence D. Fink, CEO of BlackRock, as he criticized the products of Société Générale SA, saying that he didn’t want them to damage the industry.
Some firms, such as SocGen’s Lyxor Asset Management and Deutsche Bank AG, offer synthetic ETFs. These, said Fink, add a layer of complexity and counterparty risk of which investors may not be aware.
Bloomberg reported that Fink, speaking at a New York conference held by Bank of America Merrill Lynch, said of the products, “If you buy a Lyxor product, you’re an unsecured creditor of SocGen.” He added that providers of synthetic ETFs should “tell the investor what they actually are. You’re getting a swap. You’re counterparty to the issuer.”
The criticism has been ongoing; BlackRock has been pushing for more disclosure by funds based on derivatives, and advocates a ban on the name ETF for such products. Its own ETFs are nearly all backed with the actual stocks, bonds, or commodities that they track. However, in Europe, approximately 40% of ETF assets are held by derivative-based products, and their managers have been fighting back. A