In re BlackRock Mutual Funds Advisory Fee Litigation


Our client defeated a $1.5 billion suit in a trial over allegedly excessive advisory fees.

Retained by Skadden, Arps, Slate, Meagher & Flom

Plaintiffs sued BlackRock under Section 36(b) of the Investment Company Act, alleging that the firm charged excessive advisory fees to shareholders of two of its largest mutual funds, the Global Allocation and Equity Dividend funds. Given that the funds together grew to over $80 billion during the relevant period, alleged damages exceeded $1.5 billion. Defense counsel retained Professor Erik Sirri, supported by Cornerstone Research, to provide expert and rebuttal testimony.

This is the first 36(b) case brought under a “subadviser” theory that has reached a trial decision.

This is the first 36(b) case brought under a “subadviser” theory that has reached a trial decision. BlackRock is responsible for all day-to-day operations of the Global Allocation and Equity Dividend funds. At the same time (using similar investment mandates, but providing more limited services and charging lower fees), it subadvises several funds that insurance companies offer within their variable annuity products. Plaintiffs argued that BlackRock provides essentially the same services to its mutual funds as to these subadvised funds, and that its mutual fund fees are therefore excessive.

At trial, Professor Sirri presented a comparative fee analysis showing that the fees BlackRock charges to Global Allocation and Equity Dividend fund shareholders are in line with those charged by peer mutual funds. He also exposed flaws in the plaintiffs’ expert’s analyses, and provided important context about the broad and complex range of activities in which investment advisers such as BlackRock must engage to provide mutual funds.

Following an eight-day bench trial, the judge found in favor of BlackRock. She cited Professor Sirri’s testimony favorably and extensively.

For more information about this case, contact Laura Stiglin.

Case Expert

Erik R. Sirri

Professor of Finance (Emeritus),
Babson College;
Former Director, SEC Division of Trading and Markets;
Senior Advisor, Cornerstone Research