Posted on 09/19/2008 7:11:10 AM PDT by BGHater
Putnam money-market fund suddenly closes after institutional investors pull cash
Putnam Investments on Thursday suddenly closed a $12 billion money-market fund and announced plans to return investors' money after institutional clients pulled out cash despite the fund's lack of exposure to troubled financial firms such as Lehman Brothers Holdings Inc.
The move, believed to be unprecedented in the nearly $3.4 trillion money-market fund industry, came a day after asset managers sought to reassure investors in the wake of a massive pullout from large retail fund Reserve Primary Fund. The run on that fund caused its assets to plunge in value by nearly two-thirds and fall below $1 for each dollar invested, exposing investors to losses of 3 cents on the dollar.
While Boston-based Putnam said its Prime Money Market Fund continued to hold $1 in assets per dollar share as of Tuesday, it "experienced significant redemption pressure" on Wednesday.
The firm's trustees voted to close the fund and distribute all assets to investors as quickly as possible -- an action Putnam said was "not related to the portfolio's credit quality, but was instead a reaction to marketwide liquidity issues."
When a fund suffers a sudden rush of orders to pull out money, fund managers must sell assets -- typically at a loss when it must be done quickly, and especially amid this week's market turmoil.
On Wednesday alone, investors pulled more than $89 billion from money-market mutual funds, according to data from iMoneyNet, publisher of the newsletter Money Fund Report. Combined with an additional $80 billion removed in the five preceding business days, total fund assets shrank nearly 5 percent from Sept. 10 to Wednesday, when the total stood at $3.35 trillion -- the biggest weekly drop since iMoneyNet began tracking such data in 1975.
(Excerpt) Read more at biz.yahoo.com ...
Uh oh, that’s where the state pension fund is.
“You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house...right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there’ll never be another decent house built in this town. He’s already got charge of the bank. He’s got the bus line. He’s got the department stores. And now he’s after us. Why? Well, it’s very simple. Because we’re cutting in on his business, that’s why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of those Potter houses, didn’t you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren’t going so well, and you couldn’t make your payments? You didn’t lose your house, did you? Do you think Potter would have let you keep it? Can’t you understand what’s happening here? Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicky and he’s not. That’s why. He’s picking up some bargains. Now, we can get through this thing all right. We’ve got to stick together, though. We’ve got to have faith in each other. “
It’s a Wonderful Life. My favorite movie. Jimmy Stewart
This was an institutional MM Fund and did not take deposits from individuals. The minimum deposit was 10 million dollars. It turns out the fund had zero exposure to Lehman or AIG but somehow the word was spread it did. No one lost anyhting here as the fund did not “break the box”. The per share value remains at $1.00 per share.
“somehow the word was spread it did”
I think it’s time we started asking who triggered this claim and how this triggering event occurred. When did the rumor appear and who started it? What is the original event/trigger?
Correlate this with the announcement by Paulson that any publicly-offered money market fund will be guaranteed. The gov’t entered the market for this service and thus none of the free-market competition can compete.
Putnam sucks and blows... my former company’s 401(k) was managed by them... one of their offerings “New Opportunity” fund was a joke... lost something like 50% of its value in ~2001... I doubt it has ever regained (I haven’t looked)... thankfully my company switched to Fidelity (wished it would have been Vanguard... I’m a big fan of low cost index funds).
I can’t imagine why anyone would do this out of any attempt to profit because as a money fund it cannot be bought or sold like a stock and it cannot be shorted.
It’s possible it was just something someone heard and passed to another and with the tensions in the market today it took on a life of its own.
In 2000 the New Opportunity fund was the “fund of the decade” according to the financial press, if I remember right. The old axiom “past performance no guarantee of future results” certainly applies. Especially to a tech heavy fund in 2000-2002. Some lost more than 70%.
Great speech by Jimmy Stewart, in one of my all-time favorite movies. I haven’t googled this to make sure, but didn’t the guy he was talking to take his money out anyway?
“Could I have $17.50?” :-)
That brings back memories . . . We lost about 40%.
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