* Some investors limit accounts to AAA-rated debt
* Downgrade of U.S. to AA could force mass selling
* BlackRock asked clients to decide if limits appropriate
* Wells Fargo developing plans, may ask for waivers
(Adds fund manager comment, T Rowe Price, JPMorgan outreach)
By Aaron Pressman and Richard Leong
BOSTON/NEW YORK, July 28 Some major bond fund
managers are asking their institutional clients to consider
waiving strict requirements that might force mass selling of
Treasury bonds if the United States loses its AAA rating.
Pension funds, endowments and other large investors
typically establish rules governing how their assets can be
invested when they sign on with a money manager. Some analysts
fear a downgrade of the U.S. rating would spark a mass sell-off
because of guidelines that only permit investments in AAA-rated
Conservative investors would be poorly served if fund
managers had to sell off Treasury securities because of a
downgrade, said John Donaldson, director of fixed income at
Haverford Investments in Radnor, Pennsylvania.
"In that situation, you'd want the safety of the
instruments most likely to pay off," he said "It's hard to say
a flight to quality should include something else."
BlackRock (BLK.N), the largest money manager in the world,
held calls with clients last week to review possible scenarios
if the U.S. is downgraded.
On the calls, which were led by Senior Managing Director
Peter Fisher and Vice Chairman Barbara Novick, clients were
asked to consider if limitations on holding debt rated less
than AAA should be revised and whether strict sell-down
requirements were appropriate.
"We've been working with clients steadily to make sure they
are thinking about this and preparing for it," spokeswoman
Bobbie Collins said.
New York-based BlackRock oversees almost $3.7 trillion,
including $612 billion in actively managed institutional fixed
income accounts and $438 billion in indexed institutional fixed
T Rowe Price Group Inc (TROW.O) in Baltimore has spoken
with several institutional investors in recent days regarding
whether guidelines on separately managed accounts should be
revised, given the possibility of a U.S. debt downgrade.
"We are looking into whether or not a restatement of the
guidelines may be required, and what this may involve,"
spokeswoman Heather McDonold said. The firm manages $520.9
billion, including $132.3 billion in fixed income.
The institutional asset management unit of Wells Fargo
(WFC.N) has also been talking with some of its clients about
changing investment rules and possibly signing waivers to avoid
forced selling of Treasuries in case of a downgrade.
The issue has only come up with a "handful of accounts," a
spokeswoman said. "We would like to get contingency plans in
place," she said. "That may or may not include signing of
The San Francisco-based bank's Wells Capital Management
unit manages $355 billion, including $111 billion in
institutional separate accounts.
The fixed-income managers at JPMorgan Chase & Co (JPM.N)
have also been reaching out to clients to ensure that they
aware of the implications of ratings changes on investments.
"We have been actively reviewing guidelines and contacting
clients to discuss potential portfolio considerations where
necessary," spokeswoman Kristen Chambers said.
The New York-based bank manages $1.3 trillion, including
$708 billion for institutional investors.
The three major bond agencies have said they will lower
debt ratings of federal agencies and state and local government
bonds if the United States loses its top-notch rating.
Standard & Poor's has warned that it may strip the U.S.
AAA-rating even if the White House and Congress reach a deal to
raise the $14.3 trillion debt ceiling without a credible plan
to reduce its deficit.
The Treasury Department has reiterated this week that the
federal government will run out of funding options on Aug. 2 if
the debt ceiling is not raised.
(Reporting by Aaron Pressman and Ross Kerber in Boston and
Richard Leong in New York; Editing by Andrew Hay and Dan