Putnam Investments Closes $12B Money-Market Fund

By Binyamin Appelbaum
Washington Post Staff Writer
Thursday, September 18, 2008; 3:17 PM

Putnam Investments has closed a $12.3 billion money-market fund to limit losses to its investors, the large mutual fund company said today. The highly unusual announcement is the latest sign that tremendous financial pressures are now threatening even some of the safest kinds of investments.

The Prime Money Market Fund was open only to institutional investors. Putnam said in a statement that its board decided to close the fund last night after receiving a large number of redemption requests. The company said it could honor those requests only by selling assets at a loss, reducing the value of the remaining shares.

Putnam said it decided instead to liquidate the fund and spread any losses evenly among all the investors. "We wanted to treat all shareholders equally," said spokeswoman Laura McNamara. She said it was "premature" to discuss how much of a loss, if any, shareholders will incur.

The Putnam action is likely to increase concern among investors about the safety of investments in money-market funds, traditionally viewed as basically comparable to bank accounts. Investors pulled an estimated $80 billion from money-market funds yesterday, according to Crane Data, which tracks the industry. That in turn limits the capital available to banks and other companies that regularly borrow from money-market funds.

In addition, Moody's warned today it might downgrade 13 money-market funds managed by a subsidiary of Lehman Brothers, indicating increased concern about their safety. The bond rating agency noted increased uncertainty about the ability of the parent company to cover any losses at the funds.

McNamara said that the Putnam fund's trustees were meeting today to discuss a liquidation process and that payouts to shareholders could include some of the securities now held by the fund. That might avoid the need to liquidate those securities at fire-sale prices.

The action by Putnam comes two days after one of the nation's largest money-market funds announced it was imposing a 3 percent loss on its investors. It was only the second time in history that a money-market fund imposed losses on its investors.

At least 20 other fund managers have covered losses at money-market funds to avoid imposing losses on their investors. After the Reserve failed to do so, industry observers said they expected larger companies would continue to cover any losses.

Putnam is one of those large companies, and its decision to liquidate is bound to raise new concerns about the security of other money-market mutual funds. These funds are distinct from money-market accounts at banks, which are federally insured.

Virtually all money-market funds have historically enjoyed the highest possible ratings from Moody's and Standard & Poor's. Yesterday, S&P downgraded several money-market funds managed by the Reserve after its Primary Fund imposed a loss on shareholders.

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