how not to invest...

Discussion in 'Financial Cents' started by Jonas Parker, Nov 18, 2007.

  1. Jonas Parker

    Jonas Parker Hooligan

    GE money fund redeeming 96 cts on dollar-Barron's

    <script language="javascript"> var storyKeywords = "GENERALELECTRIC MONEYFUND/ (URGENT)"; var RTR_ArticleTitle = "GE money fund redeeming 96 cts on dollar-Barron's"; var RTR_ArticleBlurb = " NEW YORK, Nov 14 (Reuters) - A $5 billion money market fund run by General Electric Co's (GE.N: Quote, Profile, Research) asset management unit is offering investors an option to redeem their holdings at 96 cents on the dollar, Barron's Online..."; </script><script type="text/javascript"> var showComments = false; /** START SITELIFE INTEGRATION **/ var uniqueArtKey = "USWEN259920071114"; var articleUrl = document.location.href.split("?")[0]; var tempTitle = unescape("GE+money+fund+redeeming+96+cts+on+dollar-Barron%27s"); tempTitle = replaceString("+", " ", tempTitle); var articleTitle = tempTitle; var articleSection = "Main"; var articleCategories = document.location.href.split("article/")[1].split("/")[0]; var slArtPage = new SLSectionPage(); slArtPage.varName = "slArtPage"; slArtPage.base.varName = "slArtPage"; function singlePageView() { document.location.href = ReplaceQueryStringParam(document.location.href, "sp", "true"); } function replaceString(oldS, newS, fullS) { // Replaces oldS with newS in the string fullS for (var i = 0; i < fullS.length; i++) { if (fullS.substring(i, i + oldS.length) == oldS) { fullS = fullS.substring(0, i) + newS + fullS.substring(i + oldS.length, fullS.length); } } return fullS; } </script><input value="13" name="CurrentSize" id="CurrentSize" type="hidden"><script language="javascript" src=""></script><script language="javascript" src=""></script> Wed Nov 14, 2007 6:37pm EST

    NEW YORK, Nov 14 (Reuters) - A $5 billion money market fund run by General Electric Co's (GE.N: Quote, Profile, Research) asset management unit is offering investors an option to redeem their holdings at 96 cents on the dollar, Barron's Online reported on Wednesday, becoming the latest casualty of turmoil in U.S. mortgage and credit markets.
    The GEAM Trust Enhanced Trust fund's assets primarily come from GE's pension trust and other GE employee benefit plans, Barron's said. In a Nov. 8 e-mail to institutional investors, GE Asset Management said "extreme conditions in the credit markets" are forcing the fund to sell securities at a loss, according to Barron's.
    It is extremely rare for money market mutual funds -- which are designed to maintain a constant $1 per share net asset value but lack federal deposit insurance -- to lose principal. In 1994, the $100 million Community Bankers U.S. Government Money Market Fund gave investors back just 94 cents on the dollar.
    In recent weeks, Bank of America Corp (BAC.N: Quote, Profile, Research), Legg Mason Inc (LM.N: Quote, Profile, Research) and other fund sponsors stepped in to support money funds. Letting a money fund lose principal would likely damage a sponsor's reputation and prompt investor withdrawals.
    GE representatives were not available for immediate comment. (Reporting by Jonathan Stempel; Editing by Jeffrey Benkoe)

    © Reuters2007All rights reserved
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  2. Bear

    Bear Monkey+++ Founding Member Iron Monkey

    That's going to look like a sweetheart of a deal to those investors compared to what may be coming to markets and all those retirement accounts invested ....[booze]
  3. Jonas Parker

    Jonas Parker Hooligan

    <table cellpadding="10" width="100%"> <tbody><tr> <td>

    <table cellpadding="0" cellspacing="0" width="100%"> <tbody><tr> <td> Money funds get bailouts
    to stem run
    ‘Enhanced cash’ suffers big drains
    By Megan Johnston
    November 19, 2007

    The world of cash investments suffered another bout of turbulence last week after news surfaced that a so-called enhanced-cash fund was redeeming shares below par value and that several banks were stepping in to bolster their own money market mutual funds that had exposure to risky investments.

    The chaos—a word that rarely shares a sentence with the words money-market funds—has left many cash pros at odds with one another about what corporate treasurers should do. Enhanced-cash funds, basically short-term bond funds that, like money funds, try to keep their net asset value constant, have seen outflows of 20% in recent weeks, according to industry sources. Helping accelerate the corporate rush to the exits is the spread of portals that allow investors to trade in and out of funds faster. Now some experts are advising treasurers to avoid money funds that hold anything but lower-yielding Treasuries.

    The enhanced cash fund that sent fresh chills through the money markets was a $5 billion GE Asset Management fund, GEAM Trust Enhanced Cash fund, which told shareholders they could recover 96 cents on the dollar after the fund lost money in mortgage and asset-backed securities. GEAM spokesman Chris Linehan said that the amount redeemed from the fund was less than $600 million, which represented a small number of investors.

    “With enhanced-cash, Libor-plus and ultrashort bond funds, a few bad apples may ruin the party for everybody,” said Peter G. Crane, founder of money fund researcher Crane Data. “This is a serious blow to the asset segment.”

    The news came after several banks and mutual fund providers announced that they had sheltered their prime money-market funds from potential losses related to investments in short-term paper issued by structured investment vehicles (SIVs), which hold collateralized debt obligations and other securitized instruments that are tied to mortgages and other loan receivables now plummeting in price.

    Bank of America said it would provide as much as $600 million to funds that purchased debt from SIVs. Legg Mason invested $100 million in one money fund and put together $238 million in credit for two others. SunTrust Banks set aside credit for two money-market funds that had bought Cheyne Finance SIV debt, which defaulted last month. SEI has reserved $129 million for two of its money funds.

    The banks’ actions were generally applauded by market watchers.

    “It shows how staunchly you’re supporting the money funds you’re sponsoring, and sends a positive message to the economy,” said Bruce Bent, chairman of the Reserve, a money fund shop. Mr. Bent added that some of the investments made by money funds were “inappropriate,” but that the fund providers’ decisions to prevent the funds from experiencing losses were a step toward reversing the mistake.

    While most in the world of corporate cash say that shoring up the resources of the money funds is a good idea, the drama has left many industry watchers with differing opinions on how it will all play out, and about what money market mutual fund investors should do.

    Most experts believe that it’s highly unlikely that prime money market mutual funds will “break the buck,” or lose their constant $1 net asset value. So treasurers should stay invested in prime funds, provided that they are high quality.

    “In past crises, we’ve seen that investors haven’t blinked,” said Mr. Crane, “and I don’t think they’ll blink this time.”

    “I think just about everyone believes that money market mutual funds, particularly those that haven’t grabbed for yields, like the AAA-rated prime funds, are still great values and there’s nothing to worry about,” said Anthony J. Carfang, a partner at consultancy Treasury Strategies.

    But not all prime money funds are created equal, he added.

    “When a fund is the top performer in the category, and is yielding substantially above the others, you want to stay away from that,” said Mr. Carfang. “There is some reason they are earning another 10 or 15 basis points.”

    Other cash management experts believe that investors should grill their fund providers for more information about their prime funds’ holdings.

    Joe Morgan, head of portfolio management at corporate cash management firm SVB Asset Management, advised treasurers to ask their fund providers if their money funds hold any defaulted securities, what their exposure is to SIVs and CDOs, and what’s happening with asset growth within the fund.

    “In terms of communication, if you’re not getting it, something’s wrong,” said Adam Dean, president of SVB Asset Management.

    While Mr. Morgan noted that he finds it highly unlikely that a fund will “break the buck,” he said that if it were to happen, it would be due to investor fears, not bad investments.

    “Defaulting securities will not cause a fund to break the buck, because of reputational risk [that the fund companies would suffer],” he said. “What would cause it would be a simple run.”

    Mr. Morgan said that the threat of a run is exacerbated by the growth of portals, technology platforms that allow investors to buy and sell money funds with a mouse click and also show who is buying and selling money funds.

    Two of SVB’s 300 corporate clients have decided to put all of their money in Treasuries and Treasury money funds.

    Jeffrey Wallace, managing partner at Greenwich Treasury Advisors, said that’s not a bad idea.

    “The number one objective for corporate short-term investments is preservation of capital, not return. No treasurer ever wants to report to the board a loss on an aggressive investment, especially these days, when there has been so much bad press on subprime and CDO investments,” he said.

    But Mr. Carfang at Treasury Strategies countered that investors would be giving up incredible yield by pouring into Treasuries.

    “When you’re going from something that’s 99.9999% safe, vs. something that’s 100% safe, the yield trade-off just doesn’t make sense,” he said.

    The top-yielding institutional Treasury money funds currently have a yield of 4.58%, vs. 5.18% for the top-yielding institutional prime money funds, according to Crane Data.

    Since August, investors have sought money funds as a relatively safe haven, pouring $400 billion into the funds. About half of that has gone into prime funds.

    Enhanced cash is another story. Crane Data estimates that cash-plus and enhanced-cash fund assets have fallen to $120 billion from $150 billion just weeks ago. Mr. Bent said that the Reserve previously had between $4 billion and $5 billion in its enhanced-cash products, but that the funds had experienced outflows and were now down to $2 billion, despite the fact that the funds do not have exposure to subprime debt or SIVs.

    GE Asset Management was only the latest among a series of firms to report difficulties in enhanced cash. Federated Investors announced it was putting an enhanced-cash fund into “incubation” after it suffered a $4.9 million loss, and of the $600 million set aside by Bank of America, half was earmarked for an institutional cash fund.

    “Money funds are built to give money back tomorrow,” said Mr. Crane. “Somebody who can do the same thing and get a higher yield is either lying or their model isn’t working properly.” FW

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