The Reserve Primary Fund
wasn't the only supposedly safe option to feel the pain after Lehman Brothers
went bankrupt in September. The Wall Street Journal
's Diya Gullapalli use the Friday Fund Track column to report
on the woes of Lehman 401(k) participants who invested in the Invesco
stable value fund and lost 170 bps in December. The fund gained just 200 bps net for the year.
The report follows up on an earlier story by Bloomberg
's Sree Vidya Bhaktavatsalam, who reported on the Lehman stable value fallout last week (see our sister publication: The 401kWire, 12/31/2008
Compared to the market's overall pain (a 39 percent decline for the S&P 500 index in 2008) and that of both stock mutual funds and other fixed income investments, a 1.7 percent loss for one month may not seem that bad, but it's practically unheard of in the stable value world, where the funds are touted as diversified (both in terms of assets and insurers), guaranteed, conservative investments that have better returns than money market funds. The last time stable value funds reported losses was 15 years ago in the wake of defaults by Executive Life and Mutual Benefit Life.
Those earlier losses spurred both a name change in the industry -- the funds had been known as "guaranteed investment contracts" before taking the "stable value" brand -- and a change in the product design as asset managers added multiple "wraps" to protect the value of the pools.
Bloomberg had claimed that Lehman's bankruptcy invalidated the insurance "wraps" on its participants stable value accounts, thus exposing participants to a bond price drop in December, and the WSJ specifically points the finger at two wrappers, JPMorgan
and Pacific Life
. (Bank of America
told the WSJ that it still wrapped the accounts, while Natixis
and State Street
didn't respond one way or the other.)
Yet since the problem stems from Lehman's and not the fund itself, Invesco spokesman Bill Hensel stressed to the Journal that the loss only affects participants in the Lehman 401(k), not other participants in other plans utilizing even the same Invesco offering.
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