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Reserve Primary Fund drops below $1 a share amid Lehman fall
NEW YORK |
NEW YORK (Reuters) - Reserve Primary Fund, a money-market mutual fund whose assets have tumbled 65 percent in recent weeks, fell below $1 a share in net asset value, because of its losses on debt issued by Lehman Brothers Holdings Inc. LEH.N.
In the industry, money funds whose net assets drop below $1 a share are said to have "broken the buck".
The Reserve Primary Fund had about $23 billion in assets on Tuesday, down from about $65 billion in assets as of August 31, said fund spokesman Ming Lee Hatch.
Investor redemptions will be delayed as long as seven days, the fund's owner, New York-based Reserve Management Corp., said Tuesday in a statement.
The fund's chairman, Bruce Bent, is known as the "father" of money funds, after creating the first money market mutual fund in 1970 with a partner.
Withdrawals which were requested before 3 p.m. New York time on Tuesday will be paid at $1 a share.
The fund held $785 million in Lehman Brothers commercial paper and medium-term notes. The fund's board revalued the Lehman holdings as "zero" effective at 4 p.m. New York time. Lehman filed for bankruptcy protection on Monday, the statement said.
"I think one of the cracks that you may see that further emanates from the Lehman Brothers bankruptcy, the Merrill Lynch acquisition and other uncertainties this week will be visible in the money-market arena," Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22 billion, told Reuters.
"Reserve Funds are the first example of what might be further developing implications as a result of the Lehman bankruptcy."
Reserve Management said in its statement that the net asset value of the Primary Fund, effective as of 4:00 PM, is $0.97 per share.
Last year, Bent told Reuters that many money market funds today are derived from firms that specialize in riskier stocks and bond funds.
"The people who have been managing many of these funds are not money fund managers, not cash managers," Bent said.
"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," he added.
(Reporting by Jennifer Ablan)
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