Columbia Strategic Cash Portfolio Fund: A Textbook Subprime Disaster
Many enhanced cash investment products were poor segregates for cash. Case in point: The Columbia Strategic Cash Portfolio fund for institutional investors, managed by Columbia Management of Boston, a division of Bank of America. In less than two months, losses and liquidations tied to the credit and mortgage crisis caused the fund to plummet in value from $40 billion to less than $11 billion. The Columbia Strategic Cash Portfolio was frozen in December 2007 when an institutional investor pulled out $20 billion.
Described by fund managers as an alternative to money-market funds, the Columbia Strategic Cash Portfolio was an enhanced investment fund designed to offer institutional investors many of the same features associated with traditional money-market funds with only moderately higher risk levels. Just like “a money-market fund,” the Columbia Strategic Cash Portfolio was promoted to provide income through a short-term, low risk investment portfolio.
From our perspective, the Columbia Strategic Cash Portfolio inappropriately invested in high risk structured investment vehicles (SIVs) and mortgage dependent securities that subjected investors to inappropriate risks and eventually significant losses. When the subprime mortgage debacle began to unfold in the summer of 2007, the Columbia Strategic Cash Portfolio fund collapsed under the weight of high-risk mortgage related investments.
Since then, a number of institutional investors have come forth with claims that the Columbia Strategic Cash Portfolio fund did not adequately disclose the high level of risks associated with its investment activity. Specifically, some institutional investors believe Columbia Management inappropriately concentrated the Strategic Cash Portfolio in securities that were illiquid, had to0 much default risk and were too closely tied to real estate.
Unlike traditional money market funds, enhanced money funds like the Columbia Strategic Cash Portfolio are not required to maintain a $1 net asset value. However, because many investors believed the Columbia Strategic Cash Portfolio was a suitable cash alternative, they thought similar requirements were mandated by the Columbia Strategic Cash Portfolio and that by the dictates of its investments guidelines, the fund would invest in short term, liquid, safe investments without inappropriate concentrations in any sector or industry.
At the time the Columbia Strategic Cash Portfolio was shuttered, only a few investors were able to liquidate their positions in the fund. Many investors were given their pro rata share of the fund’s underlying securities in lieu of cash. Still other shareholders were told they could cash out at the fund’s current share price, which at the time generally constituted a loss.
The Columbia Strategic Cash Portfolio was marketed as an enhanced cash fund and a suitable substitute for money market accounts to institutional investors. In reality, the risks associated with this investment were significantly greater than the risks associated with cash and cash like investments. As investors begin to evaluate liquidating the securities distributed to them from their Strategic Cash Portfolios, they are determining they have sustained significant losses.
Our affiliation of lawyers is actively involved in advising institutional investors of their legal options when confronted with significant investment losses.
