http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20080916/FREE/809169946/1072 September 16. 2008 6:00PM Big money market fund freezes withdrawals Savers to get 97 cents on the dollar as The Reserve Fund writes off $785 million in debt related to Lehman Brothers, in the first such shortfall in 14 years. The fallout from the collapse of Lehman Brothers Holdings Inc. is causing havoc in the... [more]
http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20080916/FREE/809169946/1072
September 16. 2008 6:00PM
Big money market fund freezes withdrawals
Savers to get 97 cents on the dollar as The Reserve Fund writes off $785 million in debt related to Lehman Brothers, in the first such shortfall in 14 years.
The fallout from the collapse of Lehman Brothers Holdings Inc. is causing havoc in the sleepy world of money market funds. For only the second time in history, a money market fund has “broken the buck.”
The Reserve Fund, a Manhattan-based firm that invented money market funds, said late Tuesday that the net asset value of its flagship Primary Fund fell to 97 cents per share. Money market funds nearly always price at a rock-solid $1 per share, but the Reserve Fund’s Primary Fund fell short because it had to write off $785 million in debt securities issued by Lehman. In industry parlance, the Reserve Fund “broke the buck”—the first time such a thing has happened since 1994.
“This is astounding,” said Peter Crane, chief executive of Crane Data, a Massachusetts-based firm that tracks the money market industry. “Nobody believed this would happen.”
The Reserve Fund added that effective Tuesday, investors seeking to sell shares in the Primary Fund, which has $62 billion of assets, would not receive their proceeds for seven days. A spokeswoman had no immediate comment.
Mr. Crane added the Reserve Fund’s move is likely an isolated case, since most money market funds are part of banks or big mutual fund companies that have the resources to pump cash into funds to ensure they maintain their $1 per share value. The Reserve Fund manages a total of $125 billion in assets.
Money market funds offer investors steady, if low, returns by investing in what are considered to be safe, short-term securities issued by governments or corporations. There are $3.6 trillion assets parked in money market funds, according to the Investment Company Institute.
Breaking the buck is especially embarrassing for the Reserve Fund, which pioneered the money market fund business in 1970. Founder Bruce Bent likes to say: “The purpose of the money market fund is to provide safety of principal, liquidity and a reasonable rate of return all the while boring investors into a sound sleep.”
“Unfortunately,” Mr. Crane said, “pioneers sometimes get an arrow in the head.”
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