Reserve Management Co. Inc of New York said its board has voted to liquidate the $20 billion in assets of The Primary Fund — 32 percent of the fund’s assets. The proceeds will be distributed on Oct. 13.
The distribution will be made to all investors in proportion to the number of shares each held as of the close of business on Sept. 15, the firm said.
On Sept. 16, the net asset value of the fund fell to 97 cents on its holdings of $785 million in debt from bankrupted Lehman Brothers Holdings.
The fund expects to distribute to shareholders between 30 percent and 40 percent of their balances on Sept. 15, a spokeswoman for the fund told Bloomberg News.
Although the fund was not directly invested in collateralized debt obligations (CDOs), it held debts from Lehman Brothers Holdings, which went into bankruptcy due to subprime lending problems.
Bruce Bent, the chairman and founder of Reserve Primary Fund and the "father" of the money market mutual fund industry, warned Bloomberg News a year ago that too many funds were being managed like stock and bond funds, not as safe cash havens.
"The people who have been managing many of these funds are not money fund managers, not cash managers," Bent said then.
"They are asset managers of different classes of assets, and they have imposed the psychology of managing stocks and bonds on money funds, and they are wrong," Bent said.
But Bent also claimed that his funds had not gone down that track and were immune to the credit crisis.
Bent in 1970 created the first money market fund, The Reserve Fund. No money market fund should invest in subprime debt, he said a year ago.
"It's inappropriate," he said. "It doesn't have a place in money market funds.”
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