Frozen Commonfund Leaves Colleges In Financial Bind
The unexpected liquidation of a popular short-term investment fund managed by Connecticut-based Commonfund has left at least 1,000 colleges nationwide facing a potentially severe financial dilemma. The $9.3 billion Commonfund for Short Term Investments Fund - of which Wachovia Corp. had resided as trustee - served as a checking account of sorts for many institutions, allowing them to pay expenses such as salaries and supplies.
In an email sent to schools on Sept. 29, Wachovia said its decision to step down from its role as trustee of the fund was based on recent market turmoil, which has created havoc on about 20% of the mortgage and asset-backed securities held in the Short Term Fund’s portfolio.
As of Wednesday, participants in the fund were allowed to withdraw about 34% of their money; by the end of the year, the amount increases to at least 57%, with the remaining funds to be available as additional securities reach maturity.
The real problem facing colleges, however, is that as of Sept. 29, virtually none of the non-government securities held in the fund could be sold at par.
The University of Vermont is one of the participants in the Short Term Investments Fund, with nearly $80 million invested. So far, the school has withdrawn $16 million, the maximum allowed. Even though additional withdrawals are forthcoming over the next several months, those amounts won’t be enough to cover the school’s operating costs through the end of the year, according to an Oct. 2 article in the Burlington Free Press. Now, the University of Vermont needs to come up with an alternative source of financing.
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