Ten Years Ago: Reserve Breaks Buck
Ten years ago today (Sept. 17, 2008), Crane Data featured the News article, "Reserve Primary Fund 'Breaks the Buck' Following Run on Assets," which told readers, "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 prior day]. 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.... 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. 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 first, and 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." See also, our Sept. 16 News, "Lehman Support Actions Push Money Fund Bailouts to 20 Total," which says, "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."
