Legg Mason To Bail Out Money-Market Fund
Hoping to insulate themselves from volatile equity markets, countless investors have turned to money-market funds over the past year as a way to minimize their investment risks.
Unfortunately, risk comes in many forms.
The latest worries regarding money-market funds have to do with corporate debt that was exposed to mortgage-backed securities. Just as some money-market funds invested in subprime mortgage-related loans, they also lent money to structured investment vehicles, or SIVs.
Recently, Legg Mason Inc., the second-largest publicly traded asset manager in the country, agreed to provide as much as $400 million to bail out an institutional money-market fund from potential losses on debt issued by SIVs. The rescue will cut Legg Mason’s profit by $195 million for the quarter ending March 31.
Since November, the Baltimore-based company has lined up $1.97 billion to prevent losses on three money-market funds that purchased SIVs. As of March 28, Legg Mason managed a total of $176 billion in money-market funds.
Andrew Richards, an analyst with Morningstar Inc. in Chicago, calls the Legg Mason situation the “worst†of those facing money-market funds. On the bright side, however, the company is at least detoxifying its funds, he says.The bottom line: Money-market funds, once thought to be as safe as cash in the bank, can indeed pose risks for investors. As the securities issued by SIVs continue to go downhill, more money-market fund managers like Legg Mason may be stepping in with cash and bail-out plans of their own.
Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.Â
