We wrote yesterday about money funds' limited exposure to Lehman Brothers and about the support actions taken by investment advisors so far. Evergreen and Russell have disclosed support agreement for their funds, while some other funds have disclosed Lehman holdings and pledged to maintain their $1.00 NAVs. The vast majority of money funds appear to have no direct exposure to Lehman, though they're now answering questions on AIG, which was downgraded to A-2 but is still P-1 (short-term ratings), and WaMu.
The latest crisis should bring Crane Data's tally of the number of advisors supporting their money funds over the past 13 months to 20. Besides Evergreen, money funds disclosing or showing holdings of Lehman in recent public filings include: Columbia Cash Reserves, which held $400 million, or 0.73% of its assets; Reserve Primary; and Russell Money Market Fund. All are expected to protect their funds from any threat to the $1.00 a share NAV should it become necessary.
Russell says in a letter, "The RIC and RTC money market funds have exposure to Lehman Brothers notes. Russell has been actively monitoring the situation and is entering into support agreements with the money market funds in which Russell and our AAA-rated parent company, Northwestern Mutual, will support the value of Lehman credit held in the funds to ensure that the funds continue to maintain a stable net asset value. The direct exposure in the RIC Money Market Fund as of Friday, September 12 was $403 million; in the Russell Trust Company Short Term Investment Fund, it was $75 million."
Last night, Dow Jones covered the story in, "Wachovia To Bolster Evergreen Funds, More Support To Come". It quotes Peter Crane, "I would expect you're going to see at least a couple of more support actions where the advisor seeks protections and purchases the Lehman or AIG (American International Group) or Washington Mutual (WM) paper from the fund."
The Dow Jones story also says, "[S]everal money funds reported holdings in Lehman paper in their most recent filings.... One example is the Primary Fund managed by New York money manager The Reserve. As of May 31, the $64.85 billion Primary Fund had some $785 million in Lehman commercial paper and medium-term notes." It adds, "The Reserve has historically protected the NAV of its money funds as needed."
Finally, Dow Jones sources Crane, saying, "Including the latest announcement from Evergreen, some 20 advisers, or almost one-third of all the major money-market fund advisors, have taken support actions to protect investors from any decline in the NAVs of money funds since August of last year.... Crane noted that historically, recovery rates for holders of commercial and medium-term notes have almost always been substantial."
