Money Market Funds' Lehman Exposure

While some smaller money market funds have broken the buck as a result of their exposure to Lehman Brothers Holdings Inc. (LEH), many publicly traded money managers appear to have little or no exposure. “Breaking the buck” occurs when a fund’s net asset value falls below $1 per share, while the point of a money market fund is to avoid this scenario.

BlackRock Inc. (BLK), Federated Investors Inc. (FII), Invesco Ltd. (IVZ), Janus Capital Group Inc. (JNS) and Legg Mason Inc. (LM) have all confirmed that they have no exposure to Lehman Brothers in their money market funds, while Franklin Resources Inc. (BEN) and T Rowe Price Group Inc. (TROW) also do not appear to have any, although they did not issue a blanket disclosure, according to JPMorgan analyst Kenneth Worthington. He was unable to find Lehman debt in any of their disclosed money market portfolios and said if they have repurchase agreement exposure to Lehman, it should not be a concern.

Eaton Vance Corp. (EV) meanwhile, does have Lehman exposure in its money market fund, but it is “manageable” at only 0.25%. It should therefore be able to avoid breaking-the-buck unless other problems turn up in the portfolio.

Mr. Worthington told clients:

While holding Lehman debt could cause some reputational harm, Eaton Vance has an immaterial money fund business to begin with, so this does not concern us.

He added that money market funds typically avoid holding non-guaranteed paper, choosing instead to have their exposure to the likes of Lehman through collateralized repos, which limits their risk.

Comments

[TKTK53:]

Look at the balance sheet for Eaton Vance
They have a lot of capital, and right now is a good time to get in on this one. And I plan to purchase some today, as now is the time to buy - not sell anything
TKTK53

2008 Sep 18 11:44 AM