Bloomberg News

Institutions Pull Most From Prime Money Funds in 15 Months

June 29, 2011

(Updates with analyst’s comment in third paragraph.)

June 29 (Bloomberg) -- Institutions pulled out of U.S. prime money-market funds at the fastest pace in 15 months, shifting to funds that invest only in U.S. government-backed securities out of concern the European debt crisis would worsen.

Institutional funds eligible to buy corporate debt lost $39 billion to net withdrawals in the week ended June 28 and $75 billion in the past two weeks, falling to $1.04 trillion, according to data from research firm iMoneyNet in Westborough, Massachusetts. Institutional money funds that buy only U.S. government-backed securities gathered $27 billion in net deposits, rising to $599 billion.

“No doubt there was some shifting over European concerns,” said Peter Crane, president of Crane Data LLC, also in Westborough. Investors pulled $15 billion from institutional prime funds on June 24, his data showed.

The European sovereign-debt crisis has raised concern that prime money-market funds may suffer losses if sovereign defaults cause big banks to fail to meet obligations. Greek Prime Minister George Papandreou today clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for his debt- laden nation.

A Greek default could pose a potential threat to money funds because they have lent to European banks that, in turn, have lent to Greece and other heavily indebted European countries. Prime U.S. money funds had about $800 billion, or half their assets as of May 31, in securities issued by European banks, Fitch Ratings estimated.

Spain, Italy

Money managers and analysts, including Vanguard Group Inc. Chief Investment Officer George “Gus” Sauter, said money funds would only be threatened if default concerns spread to Spain and Italy. Valley Forge, Pennsylvania-based Vanguard is the world’s largest mutual-fund provider.

The $39 billion withdrawal was the most pulled from prime institutional funds in one week since investors took $42 billion out in the week ended March 16, 2010. Retail prime funds lost $4.77 billion, falling to $531 billion. Total money-market fund assets decreased $18 billion to $2.66 trillion.

--Editors: Josh Friedman, Larry Edelman

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.


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