Reserve Management has shut down its U.S. Government Fund, the second fund it has liquidated, and has given no indication yet of when investors can expect their money to be returned.
Illiquid market conditions are preventing it from returning the fund's $10 billion in assets to investors, the company said. Although Reserve said the value of the underlying assets of the fund's shares was currently $1, Reserve did not promise those investors can expect full repayment of shares.
"We can't imagine the government not backing these securities, which is another way of saying we expect to recover the full amount when they mature," Bruce Bent, Reserve vice chairman and president, told investors. The fund's short-term securities are simply illiquid, he said.
As market conditions improve, the fund will "restore liquidity to investors as we can, but we don't think it is in our shareholders' interests to sell at fire-sale prices."
Except for the Primary Fund's $785 million exposure to Lehman Holdings commercial paper, now worthless, "we have no reason to think our investments have any credit problems," Reserve Management stated. "Of course, things can change, particularly considering the continued global fiscal problems."
Earlier this month, Reserve began posting the holdings of all of its funds' holdings as of the close of business the previous day, along with the holdings' maturity schedule.
As to the charge that Reserve tipped off some investors on Monday, Sept. 15 that the Primary Fund had broken the buck, the firm vehemently denied the allegations, calling them "absurd."
(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.