(Bloomberg) -- Lord Abbett is seeking government clearance to set up an internal lending program that would help its mutual funds meet client redemptions should bond markets seize up, a growing concern among large money managers.
Lord Abbett, which had about $138 billion in assets under management at the end of March, applied with the SEC on Tuesday to create an interfund lending facility, the second such move by a large money manager in the past week.
BlackRock, the world’s biggest fund company, filed a similar application on June 26 after increasing its credit lines in recent years, as CEO Larry Fink warns the retreat of banks as counterparties could create severe volatility. Bill Gross, the head of the Janus Global Unconstrained Bond Fund, wrote today that investors should prepare by stockpiling cash.
Once the application is approved, Lord Abbett funds that need money to cover failed securities trades or meet client redemptions can borrow from sister funds that are flush with cash. The interest rates charged on such credit facilities benefit both sides: the borrowing fund pays less than it would under a bank credit line, while the lending fund earns more than it would by placing excess cash in money market instruments.
To set up such a program, firms must get an SEC exemption to provisions of the Investment Company Act of 1940 that prohibit transactions between funds controlled by the same manager. The SEC began issuing such exemptions in the early 1990s, and since early 2008, has approved 14 applications tied to interfund lending facilities, according to the agency’s website.
Lord Abbett oversaw about $97 billion in fixed-income assets and $41 billion of equities at the end of March, according to the company’s website. Jim Sansevero, a spokesman for the Jersey City, New Jersey-based firm, didn’t immediately return a telephone call seeking comment on the application.