Perry Glasser

Dollar$ Wizard Award

In Business, Wall Street on September 24, 2008 at 5:37 pm

Today’s Wall Street Journal on a deep interior section buries the story of Bruce Bent. Writers Diya Gullpalli and Shefali Anand tell us that the founder of the Reserve Primary Fund, a money market that broke the buck, as late as last July was telling shareholders that their fund had “unwavering discipline focused on protecting your principal.”
However, the fund Mr. Bent built many years ago just last year made a tiny change in its bylaws. The change  allowed the fund to up its exposure to commercial paper. The Journal tells us that from May 2007 to May 2008 the Reserve Primary Fund’s exposure to commercial paper went from .09 % of controlled assets to 53.9% of controlled assets.
In that period, while accepting greater risk, the fund’s marketing  hammered home Bent’s philosophy of safety and liquidity, just what you’d want from a money market mutual fund.
Not so incidentally, by placing more than half of assets under management invested in commercial paper, the yield soared; new dollars came through the door, lured by the high yields. The total amount managed by Reserve went from a mere $27.87 billion to more than $80 billion. Execs at Reserve may have been lighting cigars with investor money.
Burning money–why not?
But then came trouble. The kind of trouble conservative investors who buy safety and liquidity do NOT look for.
As the fund’s cash reserves plunged in value, the assets under management went down 90%, to $8 billion.
On September 16, the fund broke the buck. The fund had no choice. The fund could not meet investor demands. Those fools wanted liquidity!!!
So investors learned that the par value of their savings was worth less than a dollar per share. Further, the fund froze redemptions. Never mind losses–investors were denied access to their own money. 
The Journal reports that it seems the remaining investors are all little guys–the rumor having it that institutional investors were forewarned to get their money out before Bent and his crionies put a lock on the vault.
The Journal runs this story in section C.  Waaaaaay back.
Grab your pitchforks, light the torches, there’s a Wizard in need of re-education.

  1. ouch! always do the research when you are investing a great deal of money!!!

  2. Actually, the research would not have helped anyone at all. The Fund was singing “conservative” while actually being aggressive–for a money market fund. You are right, of course, but Wizards work behind a curtain of falsehood, and then express aplogies for having messed up people’s lives.
    What good is research if the week before a collapse the services like Moody’s or S&P are awarding a firm an “A” rating?

  3. For an even better look at what Bruce Bent is up to check this link

  4. Thanks investment guru.
    Forbes is right on the money, but we all wish these Wizards were exposed by the press BEFORE their slight of hand with our money was exposed for what it is–deceiving the naive by calling a spade an apple, or a a peach or something, ANYTHING, except what it is, a spade.
    Here’s this alleged guardian of our fortunes at pains to think of new and creative ways to lead us into going broke while thinking we are being wise. “Cutting red tape” sounds appealing, until you might ask why the tape is there to begin with. Maybe it SHOULDN’T be easy to access retirement money.
    Good Lord…a debit card where for a mere $125.00/year, we get to access our own money, paying Bent for the privilege of doing so because he has made it easy.
    The money would move from a tax-free vehicle to a taxable status, conceivably incurring penalties for early withdrawal.
    Bent would be the loudest voice arguing that retirees in penury have gotten what they deserve for poor planning. He’d be arguing this from the deck of his yacht, counting his money.
    Thanks for writing.
    Come on back, y’hear?

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