This time for Putnam Prime Money Market Fund, with $14.4bn in assets under management.
Putnam Prime , though, has not broken the buck. The fund has announced that with a NAV of $1 a share, it is shutting operations and returning money to investors.
Why?
Redemption pressure earlier this week is cited as the key reason - trustees evidently felt that if it gathered pace, they might find themselves in a fire sale situation.
The press release in full is available here. Extract below:
The Trustees’ action was not related to the portfolio’s credit quality, but was instead a reaction to marketwide liquidity issues. The fund, like Putnam’s other money market funds, has no exposure to securities of Lehman Brothers, Washington Mutual or AIG at the parent-company level. The fund’s net asset value calculated on September 16, 2008 was $1.00 per share. On September 17, the fund experienced significant redemption pressure. 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 Prime was only open to institutional investors with over $10m to put in to it.
Redemptions, you might think, indicate pretty clearly a need for cash among financial institutions. Fair - and worrying - enough.
But holdings in money market mutuals are cash. They are classified as such because they’re supposed to be so safe. To wit, as FT AV earlier noted, about 17 per cent of financial instituions current “cash” holdings are in money market funds.
The Putnam Prime redemptions though, show investors no longer see it so. In the wake of Primary Reserve, there’s a realisation that money market funds are not as safe as cash in hand.
It’s a pretty worrying trend. Money market funds might have to shut even if their portfolios are sound - generalised market fears about their absolute safety could be enough - as in the case of Putnam Prime - to cause a pullback.
If money market funds start to shutter en masse, conditions in the commercial paper markets will continue to deteriorate even further, no matter how much money the Fed is throwing at Wall Street.
