Wachovia Freezes CommonFund, Limits Access To Cash For Colleges

It’s been a bad week for nearly 1,000 higher education institutions after learning a $9.3 billion fund they had used for years like a checking account to meet payroll and other daily expenses has been frozen. On Sept. 29, Wachovia Corp. broke the news that it was resigning from its role as trustee for the Short Term Fund Investments Fund, leaving college administrators unable to access their money and wondering if or when they will be able to pay their bills in the coming weeks ahead.

Much of the fund’s demise is connected to the freeze in the credit markets, which has impaired the ability of Connecticut-based CommonFund, which manages the fund, to sell the fund’s assets at their face value. For colleges invested in the fund, that means they stand to potentially lose money.

About 85% of the Short Term Fund Investments Fund was invested in “high-quality” commercial paper from blue-chip issuers. The rest, however, was in toxic asset-backed mortgage securities. Now, those assets are estimated to be selling for about 89 cents on the dollar.

Initially schools were told they could redeem only 10% of their holdings in the fund. The amount has since gone up to 33%, with institutions allowed to withdraw at least 57% of their money by the end of 2008. Any remaining funds must be taken in installments, according to an Oct. 2 article in the Wall Street Journal.

For a number of colleges, particularly smaller schools, the reality that they cannot withdraw their entire account balance in the Short Term Fund Investments Fund is devastating. Many rely on the fund as a way to pay for day-to-day operations.

Even more disturbing is the fact that some schools may never recover their full investment in the fund - an investment they thought was safe, conservative and liquid.

Our affiliation of securities 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. 

This entry was posted on Thursday, October 2nd, 2008 at 3:24 pmand is filed under Student Loan Bonds, Wachovia. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.