Today, we continue our look back at the earth-shattering events of one year ago. Late on Sept. 16, 2008, The Reserve Primary Fund became just the second money fund in history, and the first to impact a wide swatch of investors, to "break the buck". While The Reserve Fund saga is just now nearing its final conclusion and distribution (see our August 26 Link of the Day, "Reserve Fund May Pay $0.99"), the events of last September 16 continue to reverberate throughout the money fund industry. We reprint portions of our year-ago story, Reserve Primary Fund "Breaks the Buck" Following Run on Assets, below.
Describing last year's events, Crane Data wrote, "In just the second case of a money market mutual fund 'breaking the buck,' or dropping below the $1.00 a share level, in history, The Reserve's Primary Fund cuts its NAV to $0.97 cents on Tuesday. The top-ranked fund, which held $785 million in Lehman Brothers CP and MTNs, was besieged by redemptions over the past two days. Assets of the total portfolio, which is largely institutional but which includes some retail assets, declined a massive $27.3 billion Monday and Tuesday to $35.3 billion." (Note that we were unaware at the time that many of these redemptions were halted.)
Reserve said in its statement, "The Board of Trustees of The Reserve Fund, after reviewing the unprecedented market events of the past several days and their impact on The Primary Fund ... approved the following actions with respect to The Primary Fund only: The value of the debt securities issued by Lehman Brothers Holdings, Inc. (face value $785 million) and held by the Primary Fund has been valued at zero effective as of 4:00PM New York time today. As a result, the NAV of the Primary Fund ... is $0.97 per share. All redemption requests received prior to 3:00PM today will be redeemed at a net asset value of $1.00 per share."
Crane Data's year-ago story continued, "As we wrote Monday, several other firms have protected their investors from fallout from the Lehman Brothers bankruptcy. (The latest disclosure is from AmeriPrise's RiverSource funds, which filed an 8-K yesterday, announcing a $50 million purchase of Lehman CP.) A total of 21 money funds to date have taken action to protect shareholders, but the privately-held Reserve was unable to arrange credit supports in time to prevent a run."
We added, "Though money fund investors will undoubtedly be shocked and nervous over yesterday's events, we believe Reserve will be an anomaly. The combination of high yields, hot money and a lack of deep pockets likely will prove fatal to the oldest money market mutual fund. As happened in 1994 with the liquidation of Community Bankers U.S. Government Money Market Fund at $0.96 a share, we expect money market funds to soldier on with just a single case of a fund 'breaking the buck'."
