Money-market fund providers flock to federal guarantee program as deadline looms
NEW YORK (Associated Press) - With a sign-up deadline approaching next week, most of the nation's biggest money-market mutual funds providers plan to participate in a federal guarantee program to prop up the $3.4 trillion money-market fund industry.
The Treasury Department announced the program last month after investors pulled out some $170 billion from money-market funds in a seven-day period. The run was triggered when Reserve Management Corp.'s Primary Fund "broke the buck" Sept. 16 _ meaning its assets fell below the level needed to cover every dollar invested _ triggering fears about money funds' safety and exposing investors to losses.
As of Friday, most major fund families had issued statements indicating their intent to participate in the Treasury Department's fee-based program, with the notable exceptions including two of the biggest, Fidelity Investments and Vanguard Group Inc. Spokesmen for those two firms said Friday they were still considering whether to participate, and would decide in time for next Wednesday's application deadline.
The list of money fund providers that have so far indicated plans to participate includes such firms as Alpine; BlackRock; Charles Schwab; Columbia Management; Dreyfus Funds; Evergreen Investments; JPMorgan; Federated Investors; First American; Goldman Sachs; Legg Mason; Morgan Stanley; Putnam Investments; UBS; and Virtus Investment Partners.
Reserve Management has other funds besides its Primary Fund that are under pressure because of a rush of investors wanting to pull out money.
Ming Lee Hatch, a spokeswoman for New York-based Reserve, said Friday that her firm "will explore all avenues" _ including the federal guarantee program _ to protect investors' assets. But she stopped short of saying whether her firm would apply to participate.
The Treasury Department announced the guarantee program Sept. 19, and on Monday announced details including the size of fees that firms must pay to participate.
Firms managing eligible funds that agree to pay the fees will obtain guarantees via the government's $50 billion Exchange Stabilization Fund, extending protection similar to FDIC insurance for bank savings deposits.
For now, the guarantees extend only three months. After that, the Treasury Department will consider market conditions before deciding whether to end or renew. The guarantees cover only funds held in eligible money-market fund accounts as of the end of business Sept. 19, so money put in since then isn't guaranteed. Funds that broke the buck before that cutoff _ such as Reserve Primary _ aren't covered.
If assets in a covered fund fall below $1 per dollar invested, customers will be notified that their fund is covered by the insurance program.
