Wachovia Corp. and Russell Investments announced support agreements to ensure that exposure to Lehman Brothers Holdings paper doesnt impair the value of their money market funds.
Some observers say the money market and short-duration bonds market segment could be facing broader fallout from Lehmans demise and the precarious state of other financial titans.
Coping with illiquidity will become a central part of any investment portfolio strategy over the next one to three years, predicted Cynthia Steer, managing director and chief research strategist with investment consultant Rogerscasey.
Its of the utmost importance for plan sponsors and other fiduciaries to understand their cash needs, she said.
Wachovia on Monday said it would support the value of Lehman credit held in three funds offered by its Evergreen Investments money management arm. The Evergreen Institutional Money Market fund had exposure of $309 million to Lehman credit, or 1.94% of its assets, as of Sept. 12; the Evergreen Money Market fund had exposure of $110 million, or 1.66% of its value; and its Evergreen Prime Cash Management fund had exposure of $75 million, or 0.97%.
Russell said its RIC Money Market fund had $403 million in exposure to Lehman as of Sept. 12, while its Russell Trust Company Short Term Investment fund had exposure of $75 million.
Ms. Steer said its not only direct exposure to Lehman paper that is at issue, but the investment banks role in other areas such as repurchase agreements, which is adding another layer of uncertainty about the potential hit that money market and short-duration strategies could take.
Other observers say theyre less concerned. Peter G. Crane, the president & CEO of Crane Data LLC, which publishes the monthly newsletter Money Fund Intelligence, said relatively few money market funds have direct exposure to Lehman. Repurchase agreements, meanwhile, always involve collateral and are unlikely to prove a major headache.
Ms. Steer said while investors used to be able to count on that collateral being in the form of U.S. Treasuries, in recent years riskier paper has been used as well, adding further uncertainties, especially amid continuing concerns about other big financial companies. With so many financial companies in need of capital now, their willingness to step in and support money market or short-duration strategies will increasingly be called into question, she predicted.