Major fund managers acted quickly to assuage investors concerns that exposure to financial companies has not compromised their money-market funds, which are intended to be the safest of investment vehicles for institutional investors. The actions follow Tuesdays breaking of the buck by the Reserves Primary Fund.
Federated Investors Inc. and BlackRock Inc., two of the largest money market managers, indicated that their funds held no commercial paper issued by Lehman Brothers, and asserted that their funds will continue to maintain a $1 net asset value.
Fidelity Investments has seven taxable money market funds with exposure to AIG securities, amounting to between 0.17% and 0.54% of portfolio value, according to a Fidelity statement. But the fund giant was confident that the holdings in securities of two American International Group units will pay full principal at maturity, the statement said.
The AIG exposure of Fidelity funds is in securities of ASIF Global Funding and International Lease Finance Corp. ASIF Global Funding is a regulated funding insurance subsidiary International Lease Finance Corp. is a profitable global aircraft finance subsidiary that has enjoyed strong financial results, the Fidelity statement said.
Fidelity has been proactive in keeping our money market funds safe and in protecting the $1.00 net asset value, which has always been our No. 1 objective in managing these funds, the statement said.
The funds have no exposure to Lehman Brothers Holdings Inc. or Washington Mutual Inc., the statement said.
Vanguard Groups largest money market fund, the taxable Prime Money Market Fund, which had $106.3 billion as of Aug. 31, has no exposure to securities issued by AIG, Lehman Brothers or other securities dealers, according to a statement today from the mutual fund company.
Officials at Federated held a special conference call with an estimated 500 clients Wednesday morning to discuss the status of the firms holdings and address the volatility in money-market funds this week. Executives at Federated, which managed $271 billion in money-market assets as of June 30, said money-market funds had no exposure to AIG or Washington Mutual-issued debt either.
Were thankful for the AIG resolution, noted Debbie Cunningham, chief investment officer for taxable money funds at Federated, commenting on Tuesdays decision by the Federal Reserve Bank of New York to extend an $85 billion two-year secured loan to AIG in return, effectively, for a 79.9% equity stake. A lot of the pressure on the marketplace is now relieved, Ms. Cunningham added.
Don Phillips, managing director at Morningstar, said a money-market fund falling below the $1 per share net asset value as occurred Tuesday with the Reserve Primary Fund is an unpleasant but survival event for investors, although it could cost them six months or a years worth of earnings. But for the asset management company, it would soil its reputation, he said.
None of the 525 money market funds rated by Standard & Poors were affected by exposure to Lehman, according to an S&P statement. Their exposure to AIG is not out of the ordinary, Peter Rizzo, S&P senior director, said in an interview, although he said he couldnt disclose details. The majority of rated funds stopped investing in Lehman prior to Lehmans bankruptcy filing, and many others were rolling overnight (or one-day) (repurchase agreements) that were paid in full Sept. 15, the statement said. The remaining rated funds that held Lehman paper either had their exposures purchased out by their parent companies or are in the process of obtaining credit support agreements.
Investors held roughly $3.5 trillion in money-market fund investments as of Sept. 10, according to the Investment Company Institute.
Hilary Johnson and Mark Bruno are reporters for Financial Week, a sister publication of Pensions & Investments