BOSTON (AP) – 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.
In explaining its decision to close Prime Money Market Fund, Putnam said, “Serious constraints on liquidity in money market instruments created the risk that in order to process redemptions, the fund would realize losses in selling its portfolio securities. In the face of these challenges, the trustees determined to close the fund to ensure equitable treatment of all fund shareholders.”
Putnam also asserted that the fund, like its other money market funds, had no exposure to securities of Lehman Brothers, Washington Mutual or AIG at the parent-company level.
Putnam spokeswoman Sinead Martin said the fund held $12.3 billion in assets as of Tuesday, down from $15.4 billion on Aug. 31.
AP-ES-09-18-08 1614EDT
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