Lately, many frustrated preferred investors have searched for an opportunity to cash in on the subprime crisis and move on. Responding directly to investor woes, several closed-end fund companies like Nuveen Investments Inc. and Eaton Vance Corp. decided that they would be offering investors a chance to redeem their auction-rate preferred securities, The Wall Street Journal reports
Last week, the Securities and Exchange Commission granted Eaton Vance permission to provide a new auction-rate security known as Liquidity Protected Preferred Shares.On Monday, Eaton Vance said that it plans to redeem about $310 million in auction-rate preferred securities for about 15 of its municipal funds.
However, not everyone is as eager to follow Eaton Vances lead.
Other well-known closed-end fund companies have decided not to follow this trend, mainly out of fear for common investors. Allianz SE, Lehman Brothers Holdings Inc., and Pioneer Investments are a few of those firms.
For Allianz SE, the decision to wait might be particularly smart.According to data from FactSet Research Systems Inc., legendary bond-fund manager Bill Gross has roughly $43 million invested in nine Allianz SE PIMCO closed-end funds. With common shareholders this powerful, companies need to make sure they make decisions they do not regret after the fact.
Mainly, firms are concerned that if they replace the auction-rate debt with other leveraged instruments, fund earnings might suffer in the long run. In the meantime, a spokesman for PIMCO said that the company is working diligently in order to reconcile the competing considerations facing common and preferred shareholders.