Northern Trust shutting fund in latest prime money market stress

By Ross Kerber

BOSTON (Reuters) – Northern Trust Corp said it will liquidate a $1.8 billion prime money market fund, one of a number to come under stress this year as investors withdraw cash.

In filings on Monday Northern Trust of Chicago said its fund board determined to liquidate and terminate its Prime Obligations Portfolio around July 10, and return money to shareholders, with the action being in their “best interests.”

The fund’s manager in March had disclosed its liquidity level dipped temporarily, but Northern Trust did not give a more specific reason for the latest steps. A spokesman for the Chicago asset manager did not immediately return messages seeking comment.

Bloomberg previously reported Northern Trust’s action.

Like rivals, the prime fund owns a range of government, bank and commercial instruments to create a vehicle with cash-like features but higher yields than government-only portfolios.

However the sector has come under pressure in the ongoing economic crisis stemming from the COVID-19 pandemic, prompting Federal Reserve support.

Other fund firms including Vanguard Group Inc, Fidelity Investments and Goldman Sachs Group Inc also have taken steps like injecting cash into their money funds or closed them to new investors in order to protect the returns of existing shareholders.

In a note to clients on Wednesday analyst Brian Reynolds of Reynolds Strategy LLC wrote that Northern Trust managers took the right steps and that the action is a “not a crisis situation” where the fund ‘broke the buck,’ meaning its net asset value did not fall below $1 per share.

But Reynolds added that “it is likely going to be more difficult to obtain liquidity as this year goes on, and that is likely to lead to at least a sharp correction in stocks once the current bounce in equity prices has run its course.”

(Reporting by Ross Kerber in Boston; Editing by Andrea Ricci)