Investors are cautiously returning to battered money-market mutual funds after the government intervened to stem a massive pullout by professional money managers.
BOSTON — Investors are cautiously returning to battered money-market mutual funds after the government intervened to stem a massive pullout by professional money managers.
The run on the funds had threatened to expose individual investors to losses that, while just pennies on the dollar, would have been unprecedented for the normally safe investments.
A firm that monitors fund flows reported Tuesday that total assets rose more than $5 billion Monday, to about $3.3 trillion.
The gain marked a sharp reversal from last week, when assets fell nearly $189 billion, or more than 5 percent, in the seven-day period ended Friday, according to iMoneyNet, publisher of the newsletter Money Fund Report.
Most Read Business Stories
- The penthouse atop Smith Tower is on the rental market for the first time
- Downtowns will be back, but Seattle has choices to make
- Washington state ‘literally failed workers,’ and fixing the unemployment system won't be easy
- Boutique cruise line Windstar will move its Seattle headquarters to Miami
- J&J’s 1-dose shot cleared, giving US 3rd COVID-19 vaccine
Another firm, Crane Data — which compiles a smaller data set than iMoneyNet, counting only the 500 largest funds — reported assets rose $1.5 billion Monday.
“It ain’t much, but it sure beats the big hole the industry had been getting into,” said President Peter Crane.
Crane’s data show last week’s pullout continued Friday, when fund assets fell nearly $22 billion the same day the government announced it would bolster the industry with temporary fund guarantees and an expanded emergency-lending program.
The moves by Treasury Department and Federal Reserve “have eased the pressure on the funds tremendously, and raised the odds that we won’t see another fund ‘break the buck,’ ” Crane said.
Last week’s run was triggered after the Reserve Primary Fund conceded that a $785 million investment it made in debt of Lehman Brothers had become worthless after the investment bank’s bankruptcy.
The rush of redemption orders from institutional investors such as corporations and pension funds suddenly gutted fund assets from $64 billion to $23 billion, sinking the asset value to 97 cents for each investor dollar put in, and exposing clients to losses of pennies on the dollar.
It was just the second instance of a money fund “breaking the buck” — when the value of one share falls below $1 — in the industry’s 38-year history, and the first since 1994.
Also Tuesday, the Primary Fund’s managers, Reserve Management, issued a statement saying that asset values at 20 of its funds had remained at the dollar-for-dollar level as of Monday.
But Reserve said the latest asset values were unavailable at three funds — Primary Fund, and two smaller funds, Reserve Yield Plus and Reserve Yield Plus Institutional.
Last week, Reserve restricted redemption orders and said it was closing its funds to new-share purchases indefinitely — moves that came as several other firms scrambled to infuse cash into their funds to prevent them from breaking the buck as well.
Litigation has mounted in recent days from some Primary Fund investors who allege favored institutional clients were tipped off to the fund’s troubles the day before the fund broke the buck, enabling them to quickly place redemption orders and securing a dollar-for-dollar return rather than the losses suffered by those pulling out later.
Reserve Management spokeswoman Ming Lee Hatch declined to comment on the lawsuits Tuesday, or elaborate on the statement about the funds’ latest asset values.
Despite Monday’s gain in overall fund assets, institutional investors continued to be pickier than individual retail clients.