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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Snowshoe who wrote (68218)	8/29/2007 8:28:51 PM
From: Snowshoe	Read Replies (1) \| Respond to of 116555

I suspect this is the fund that is hurting the Alaska retirement system... State Street Bond Fund Deep in Red smartmoney.com By Dow Jones Newswires August 28, 2007 NEW YORK (Dow Jones) -- State Street Corp.'s (STT) Limited Duration Bond Fund, which managed $1.4 billion for institutional clients, lost about 37% of its value in the first three weeks of August, the Boston Globe reported on its Web site Tuesday, citing an investor. The investor also told the newspaper that the fund, which is managed by State Street Global Advisors, had plunged 42% for the year as of Aug. 21. "Both the level of (our) underperformance and the degree of market turmoil are unprecedented in our 30-year history as a fixed income manager," State Street executive Sean P. Flannery wrote in an Aug. 14 letter to clients, the Globe reported. According to the report, the fund's big losses may have been been caused by investments in mortgage-related securities, and leveraging, which magnified the problems. The Globe cited Flannery's letter as describing a fund that "increasingly focused on housing-related assets." Meanwhile, the fund borrowed to increase its portfolio to between two and three times the amount of money clients had invested in State Street, according to an investor. The State Street Limited Duration Bond Fund was created in 2002 as a way to generate better results than those of money-market funds with only slightly more risk, the newspaper reported. The fund was widely considered an "enhanced cash" product, an investment category usually considered very low risk. It was sold only to institutional clients, not individual investors, the Globe said. State Street officials declined to discuss anything about the fund, the Globe reported. But Flannery described difficult investment conditions in his letter to clients. "This market situation is extreme and challenging to manage," he wrote. "While we believe that the home equity-linked markets clearly convey far greater risk than they have historically, we feel investors must take into account the downside of forced selling in this chaotic and illiquid market." State Street shares slumped 4% amid Tuesday's market decline. In addition to the fund losses, investors were rattled by reports that the bank holds almost $29 billion in asset-backed commercial paper "conduits," vehicles that finance commercial and retail loans with funds raised in the market for short-term corporate debt.