Another Fund Heavily Used by Schools Is Frozen
A second investment fund offered by investment adviser Commonfund froze most withdrawals this week, posing possible financial strains for the 200 colleges and schools invested in the fund.
The Commonfund Intermediate Term Fund held $1 billion in assets for the schools. Commonfund, a Wilton, Conn., investment adviser for colleges and schools, told clients they could withdraw only 30% of their money now, and said it will make the rest available "as quickly as possible," depending on market conditions. The fund would normally give investors any part of their money the day after a withdrawal request.
Keith Luke, managing director of Commonfund, says about half of the fund was invested in mortgage- and other asset-backed securities from which investors have been fleeing. The rest was in government-agency and corporate debt that has held up better in the financial crisis. Mr. Luke said Commonfund instituted the freeze because redemption requests would have forced the fund to sell securities at "distressed prices." He said the portfolio's securities haven't had defaults.
The fund returned less than 1% in the year ended June 30 and 2.7% annualized over the past five years, underperforming its benchmark Merrill Lynch 1-3 Year Treasury Index, according to Commonfund. Mr. Luke says the fund has had outflows but they "haven't been huge." He said he didn't know when restrictions would be lifted but it would depend on improvements in the credit markets.
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