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By Christian Plumb and Svea Herbst
NEW YORK/BOSTON, Dec 10 (Reuters) - Bank of America Corp’s (BAC.N) Columbia asset management unit is closing a cash management fund for institutional investors, as problems with troubled fixed income assets claimed their latest high profile victim.
The Columbia Strategic Cash Portfolio fund, whose assets under management have tumbled from over $30 billion to less than $11 billion, has been closed to new investors, said Columbia spokesman Jon Goldstein, who blamed “unprecedented issues” in the short term debt markets.
“Because of market conditions, we thought it best for the fund and its investors to unwind this particular investment vehicle over time,” he said.
The fund’s collapse, which came after it invested in risky assets in the pursuit of higher returns, follows troubles at a similar fund managed by General Electric Co (GE.N). It could be bad news for other such “enhanced cash” funds, one analyst said.
“The Bank of America Strategic Cash fund was the largest entity and this means the entire enhanced cash sector will likely end up in a wind down phase,” said Peter Crane, who tracks the money market industry at Crane Data. “It is not going to affect you or me, but certainly in the enhanced cash space this likely signals the beginning of the end.”
Goldstein said large clients had shifted some $20 billion of assets into separately managed accounts administered by Columbia, in which the investors directly own the underlying securities, which they can sell or otherwise manage for tax purposes. Investors with immediate liquidity needs would be addressed “on a case by case basis,” he said.
He said some investors are also staying in the fund, which pays nearly 4.9 percent in interest and whose net asset value is at 99.42 cents on the dollar.
Bank of America in November said it had set aside $300 million to help money market mutual funds exposed to lower quality assets of so-called structured investment vehicles — funds which actually went to bolster the Strategic Cash Portfolio, according to a source familiar with the situation.
The No. 2 U.S. bank is one of several financial institutions that have been forced to prop up faltering money market funds that invested in SIVs, many of which in turn invested in high-yielding but risky subprime securities.
Bank of America shares, which initially trimmed gains on the fund news, were up $1.19 cents, or 2.6 percent, at $46.59 in late afternoon trading on the New York Stock Exchange. That was in line with the broader gain in the banking sector.
Columbia’s Goldstein said 90 percent of the fund’s underlying securities were rated double or triple “A.” He described them as “securities in the enhanced cash fund environment that are facing more illiquid times right now.” (Additional reporting by Joseph Giannone; Editing by Tim Dobbyn and Andre Grenon)