Reserve Primary Money Fund Falls Below $1 a Share (Update2)
By Christopher Condon
Sept. 16 (Bloomberg) -- Reserve Primary Fund, a money-market mutual fund with $64.8 billion in assets as of Aug. 31, fell below $1 a share in net asset value because of losses on debt issued by Lehman Brothers Holdings Inc.
Investor redemptions will be delayed as long as seven days, the fund's owner, New York-based Reserve Management Corp., said today in a statement. Withdrawals requested before 3 p.m. New York time today will be paid at $1 a share.
Bruce Bent, chairman of Reserve Management, opened the first money-market mutual fund in 1970. The only other money-market fund to inflict losses on shareholders was the Community Bankers Mutual Fund in Denver, which liquidated in 1994 because of investments in interest-rate derivatives.
``This is uncharted territory,'' said Peter Crane, president of Crane Data LLC in Westborough, Massachusetts, which tracks money-market funds. ``That's certainly a stunner.''
The fund held $785 million in Lehman Brothers commercial paper and medium-term notes. The fund's board revalued the Lehman holdings as worthless effective at 4 p.m. New York time. Lehman filed for bankruptcy protection yesterday.
Bent often said the best money-market funds should be ``boring.'' He derided other funds that invested in securities linked to subprime mortgages and other risky debt.
``It exacerbates some of the flight-to-quality into Treasuries,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA.
Considered Safe
Money funds are regulated in the U.S. by the Securities and Exchange Commission and are considered the safest investments outside insured bank accounts and government debt. They are required to hold debt that matures in 13 months or less, with a weighted average maturity of 90 days or less. The securities must have top short-term corporate debt ratings.
U.S. money-market mutual fund assets were $3.58 trillion as of Sept. 10, according to the Investment Company Institute, a Washington-based trade group.
Reserve Management's assets rose 95 percent in the year ending June 30 to $125 billion, as investors sought safety from falling equity markets. Banks and other institutional investors accounted for 65 percent of total assets.
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net |
