Doane College money in frozen money fund

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By staff and wire reports

Doane College is apparently the only educational institution in Nebraska that had money in a fund that has limited its clients’ access to their cash and is being liquidated.

Wachovia Bank, trustee for the $9.3 billion Short Term Fund offered by Commonfund, said Monday it was terminating the fund and establishing an orderly liquidation and distribution of the fund’s assets.

Wachovia initially told investors that they could withdraw only 10 percent of their money, but that figure was increased to 34 percent by Wednesday and 37 percent by Thursday.

Commonfund is a Wilton, Conn.-based nonprofit that advises colleges and schools on money.

The short term fund serves about 1,000 colleges and private schools, some of which were forced to develop new plans to pay bills.

Julie Schmidt vice president of finance, said Doane College had about $4.3 million in the fund, but they’ve been allowed to take out the 37 percent, about $1.3 million, which they have put in their local bank account and intend to put into U.S. Treasury instruments.

“We do intend to take the rest out when we can,” she said.  “Commonfund is predicting we’ll have 100 percent of our money by the end of December, so within the next 60 days.”

This is a liquidity issue for the fund, she said,  and nothing in the fund has defaulted. 

Most of the money is for operating funds, and Schmidt said she hopes the money they have will get them through October.

Doane has been doing business with Commonfund for about 15 years, according to Schmidt. 

Money funds are usually backed with short-term, reliable debt instruments.   Money funds are used almost like a checking account, for parking money an institution might need very soon.

“It’s not the kind of investment you’d think this would happen to,” Schmidt said.

“I’m feeling pretty good about all of this,” Schmidt said.  “They gave us more than they originally said they would. Everything could change instantly with the Congressional action.  We’ll have to see how that plays into it, too.”

The Short Term Fund provides returns slightly above U.S. Treasury bills. About 85 percent of the fund was invested in high-quality commercial paper from blue chip companies, while the rest is in securities backed by mortgages and other assets, said Keith Luke, managing director of Commonfund.

As the housing industry and credit markets are disrupted, mortgage-backed securities and even some commercial paper have become increasingly unpopular as investors seek safer options like Treasury bills.

Commonfund said volatile markets have hurt the 15 percent to 20 percent of the Short Term Fund’s portfolio held in mortgage- and asset-backed securities.

Wachovia’s decision to slowly liquidate the fund is designed to prevent a rush by investors. When a fund sees such a rush, fund managers must sell assets — typically at a loss when it must be done quickly, and especially amid the recent market turmoil.

A slow liquidation helps protect investor returns and ensure each investor would be treated equally.

Of other colleges and universities in the state, the University of Nebraska Foundation and Wayne State College Foundation said they had money in other Commonfund funds, not the one terminated.

Carolyn Murphy, vice chancellor for finance for the Nebraska State College System, said Wayne State College Foundation had about $10 million split among three different funds: a multi-strategy equity fund, a multi-strategy bond fund and a private real estate fund.

 Rob Crouch, spokesman for the NU Foundation, said it has money in the multi-strategy bond fund, too.

Commonfund management, also said Thursday it put a 30 percent limit on withdrawals from its Intermediate Term Fund after investors in the Short Term Fund tried to withdraw money from that fund.

About 200 colleges and universities have about $1 billion in the intermediate fund, which is used for longer-term needs, such as equipment plant purchases, he said.

“We just didn’t have the liquidity in the fund to do that,” Luke said. “We will relax that as soon as market conditions permit.”

Commonfund said it pledged $50 million of its corporate reserves in April to back the fund.

Journal Star reporters Richard Piersol and Margaret Reist and the Associated Press contributed to this report.