One reason for fixed income manager BlackRock’s chief Larry Fink to seek the assignment of acting as manager to the recently scuttled SIV rescue plan may have been to generate some good PR. Today’s Wall Street Journal tells us why that might have been of interest. A BlackRock enhanced cash fund has fallen by more than half in value this quarter, due to withdrawals and losses, and has suspended certain cash redemptions. Amusingly, Moody’s has downgraded the fund to Ba, a junk rating, while Standard & Poor’s maintains a triple A.
This isn’t a particularly large fund (it was a bit over $21 billion when the troubles began) and some other enhanced cash funds, such as ones operated by Bank of America and General Electric, are in the process of winding up. Nevertheless, this is an embarrassment for a firm that presents itself as a canny player.
From the Wall Street Journal:
An institutional cash fund from BlackRock Inc. has been downgraded to “junk” status by Moody’s Investors Service after the fund suspended certain daily fund redemptions — one of the latest signs of an investment fund getting hit because of tight conditions in short-term debt markets.
The fund isn’t a money-market fund, but instead is a similar type of product — known as an “enhanced” cash fund — that seeks to offer higher yield to investors through a variety of shorter-term investments.
As many of the securities in the portfolio have become harder to trade, and more redemption requests have come in, BlackRock Cash Strategies Fund has been unable to honor all the redemptions in cash, according to a letter to investors. It has declined to about $1 billion from more than $2 billion at the end of the third quarter.
Many of the fund’s securities are supported by a capital-support agreement providing up to $70 million of protection against losses incurred and a standby letter of credit from Wachovia Corp.
For investors seeking to redeem their investment in the fund, BlackRock said it would deliver the securities to their custodian, place them in a no-fee separate account, or sell them on the investors’ behalf. For those who remain, BlackRock said it would provide cash back at its own discretion as it becomes available.
Moody’s downgraded the fund from a top Aaa rating, to a Ba, which is below investment grade. It also reduced the fund’s market-risk rating.
The fund’s net asset value per-share remains at its target $1, and Standard & Poor’s Ratings Services has maintained its AAA rating on the fund.
A BlackRock spokesman says all 22 clients in the fund have remained invested thus far. Moody’s noted on Friday that while the portfolio’s weighted average credit quality remains consistent with its previously high rating, it has withdrawn its credit and market-risk ratings at the manager’s request.