June 28, 2011 / 9:06 PM / in 7 years

WEALTH MANAGER-Fretting, not panicking, over money funds

* Greek woes prompt reviews of fund exposure

* Withdrawals well short of 2008 Lehman-related panic

* Investors shifting to bank deposits, government funds

By Joe Rauch and Ross Kerber

CHARLOTTE, N.C./BOSTON, June 28 (Reuters) - U.S. wealth advisers and investors are taking a second look at their investments in prime money market funds that may be exposed to European securities affected by the Greek debt crisis.

About $1.7 trillion is held in all prime funds, led by JPMorgan Chase & Co’s (JPM.N) Prime Money Market fund, with $128 billion in assets as of May 31, according to Lipper data.

Several independent advisers who manage money for small investors said they are starting to review whether clients should transfer assets to funds that invest solely in U.S. government securities and other safer investments.

They say memories are still fresh of the panic of 2008 when the Reserve Primary fund, that was heavily invested in Lehman Brothers issues, fell below the $1 a share level promised by money market funds.

The funds, which invest in corporate as well as government issues, are marketed as near equivalents to cash, with the advantage of yielding a small interest rate.

“What’s the point of chasing 20, 30 basis points of yield if there’s the possibility that what is cash may not be cash at some point?” said Adrian Cronje, chief investment officer at Atlanta-based Balentine, which oversees $800 million in client assets. “It’s a risk you cannot afford to ignore right now,”

Cronje isn’t advocating a knee-jerk withdrawal from all money-market funds but said Balentine last week recommended to many clients that they shift assets out of money-market funds into U.S. bills and other securities.


According to iMoneyNet.com, prime money-market funds are experiencing moderate but steady outflows this month, with the pressure increasing as worries about Greece intensified in the past week. A total of about $19 billion was pulled from the funds on Friday and Monday.

Representatives of JPMorgan Chase and Fidelity Investments, operators of the two biggest money funds, did not provide details about flows.

(For a table showing the move from prime funds:r.reuters.com/buj42s )

Pressures appeared to ease on Tuesday on expectations that Greece will accept a fiscal austerity plan led by France in exchange for European governments rolling over maturing Greek sovereign bonds. [ID:nL6E7HL0JK]

    Indicating that fears about Greek debt are ebbing, the spread between the London Interbank Offered Rate and three-month Treasury bills US3MT=RR narrowed Tuesday after reaching its widest level in 1-1/2 months last week.

    Advisers say that investors are nevertheless raising questions about similarities between current events and Sept. 18, 2008, when $86.6 billion was pulled from prime funds invested in Lehman debt.

    Some advisers with unhappy memories of nursing nervous clients through those times, are going so far as to recommend simple federally insured bank deposits.

    “It’s hard to imagine why you would be keeping money in money-market funds,” said Thomas Fisher, head of Fisher Financial Strategies, a fee-only wealth adviser in Cambridge, Massachusetts, noting that many bank deposits are yielding higher rates than money funds.


    Other advisers say the European woes have been a nonissue for clients.

    “We haven’t had any concerns as it relates to money markets,” said Ross Singletary, a managing partner at Arcus Capital Partners, an Atlanta-based advisory firm with about $800 million of client assets under management.

    He called panic over the European debt crisis “a tempest in a teapot,” but said that Arcus has centralized its clients’ cash since the 2008 height of the financial crisis in more conservative investments like U.S. treasuries.

    “We’ve taken an overly cautious stance,” Singletary said. (Reporting by Joe Rauch and Ross Kerber; Richard Leong contributed to this story; Editing by Tim Dobbyn)

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