Monday, December 10, 2007

More Details on BofA Fund Closure

by Bill McBride on 12/10/2007 09:29:00 PM

From the WSJ: Investor Withdrawals Shut BofA Fund

Columbia Management is shutting its Strategic Cash Portfolio ...

Only some investors will get their cash out. The fund's biggest investors will be paid "in kind" -- that is, they will be given their share of the underlying securities, rather than a cash payment. Smaller shareholders can cash out at the fund's share price, which is currently 99.4 cents on the dollar. The fund required a minimum investment of $25 million.
So small investors - with just $25 million - will receive 99.4 cents on the dollar. Large investors will be paid "in kind". Ouch!

Some enhanced funds are doing even worse:
A report Monday by Standard & Poor's found that about 30 U.S.-oriented enhanced cash funds rated by S&P had lost a total of $20 billion, or 25% of their assets, in the third quarter. In one of the more dramatic instances, one fund (which S&P declined to identify) saw its assets under management shrink by 98% or $2.5 billion.

Even traditional money-market funds have felt pressure. ... at least a half-dozen financial institutions, including Bank of America, have taken steps such as buying the funds' troubled securities to protect their money funds....

Money-market funds are required to maintain an unchanging $1-per-share net asset value; if they waver from that they are said to "break the buck." Enhanced cash funds don't have the same requirement.