Bankruptcy

Wachovia Freezes College Fund

By J. Michael McBride

Quote:

“Wachovia Bank on Monday notified the institutions involved in the $9.3 billion Common Fund for Short Term Investments that, as trustee, it would be terminating the fund and distributing the assets. Commonfund of Wilton, Conn., manages investments for thousands of nonprofit institutions, including Baldwin-Wallace College, Oberlin College and the University of Akron.

Wachovia’s email to the institutions said the decision to terminate the Short Term Fund was one of several options officials at Wachovia and Commonfund had considered in recent months. The Short Term Fund will be terminated as of Dec. 31.

“Recognizing that the market for certain high quality, short-term debt instruments has become increasingly disrupted over the course of the past several months, and in order to ensure fair and equitable treatment of all investors in the Fund, Wachovia implemented the termination and liquidation plan this morning,” the email said. “Effective immediately, no further contributions to the Fund will be accepted.”…

“For some schools, this could be a real nightmare,” said Mr. Watts, who noted that many colleges invested their money in the Common Fund because it was supposed to be “conservative and safe.”

According to a Sept. 30 statement by Commonfund, Wachovia on Friday, Sept. 26, restricted liquidity in the fund to 10% of each participant’s account value. That amount mirrored the value of maturing securities in the fund as of Monday, Sept. 29.

“The remaining 90% of the fund will be available to investors over the coming weeks and months as securities in the portfolio mature and as the fund’s advisers are able to sell underlying securities when markets return to normalcy,” the Commonfund statement said.

Commonfund said at least 26% of the fund became available on Wednesday, and 57% of the fund would mature by Dec. 31. So far, no securities in the Short Term Fund have defaulted and they continue to pay principal and interest.

Here is the link to one article (out of Financial Week) on this new development:
http://www.financialweek.com/apps/pbcs.dll/article?AID=/20081002/REG/810029991/1036

Michael

Full post as published by Texas Lawyer Blog on October 02, 2008 (boomark / email).