Comments on: Unstable Value Funds? (II) http://alephblog.com/2009/01/09/unstable-value-funds-ii/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Thu, 18 Mar 2010 13:31:18 -0400 http://wordpress.org/?v=2.8.4 hourly 1 By: David Merkel http://alephblog.com/2009/01/09/unstable-value-funds-ii/comment-page-1/#comment-20822 David Merkel Thu, 29 Jan 2009 05:46:20 +0000 http://alephblog.com/?p=1314#comment-20822 Bond Newbie -- I called it "a first crack in the foundation for stable value funds." Nothing more. The stable value funds are loaded with AAA-rated paper, much of which is trading significantly below par at present. If redemptions at par became significant, many stable value funds would fail. I've worked in the business, and think I know it pretty well. I've run the stress test scenarios for SV pools, and I know what can break them. A lot of those factors are on the table now, including the possibility of more wrappers failing, which, though ugly-sounding, is the least of the worries here. I thought I wrote something fairly balanced here. I recognized what would take worse losses -- not the stable value funds. Bond Newbie — I called it “a first crack in the foundation for stable value funds.” Nothing more.

The stable value funds are loaded with AAA-rated paper, much of which is trading significantly below par at present. If redemptions at par became significant, many stable value funds would fail.

I’ve worked in the business, and think I know it pretty well. I’ve run the stress test scenarios for SV pools, and I know what can break them. A lot of those factors are on the table now, including the possibility of more wrappers failing, which, though ugly-sounding, is the least of the worries here.

I thought I wrote something fairly balanced here. I recognized what would take worse losses — not the stable value funds.

]]> By: Bond newbie http://alephblog.com/2009/01/09/unstable-value-funds-ii/comment-page-1/#comment-20820 Bond newbie Thu, 29 Jan 2009 05:12:03 +0000 http://alephblog.com/?p=1314#comment-20820 David, you're kind of off-base in fearmongering here. Read the WSJ article again, esp. the last paragraph, and the Bloomberg version of same events. ONLY LEHMAN EMPLOYEES ARE TAKING LOSSES -- participants at other firms that use Invesco Stable Value funds are fine. This is a tempest in a teapot, and no different than "Wah, wah, I had all my 401(k) money in Enron/ Worldcom/ HealthSouth/ Lehman stock and now I'm ruined." If you invest in an employer-sponsored savings plan, don't be surprised if it's in trouble should your employer get into distress. David, you’re kind of off-base in fearmongering here. Read the WSJ article again, esp. the last paragraph, and the Bloomberg version of same events. ONLY LEHMAN EMPLOYEES ARE TAKING LOSSES — participants at other firms that use Invesco Stable Value funds are fine. This is a tempest in a teapot, and no different than “Wah, wah, I had all my 401(k) money in Enron/ Worldcom/ HealthSouth/ Lehman stock and now I’m ruined.” If you invest in an employer-sponsored savings plan, don’t be surprised if it’s in trouble should your employer get into distress.

]]> By: Anderson http://alephblog.com/2009/01/09/unstable-value-funds-ii/comment-page-1/#comment-20685 Anderson Mon, 12 Jan 2009 02:42:23 +0000 http://alephblog.com/?p=1314#comment-20685 A definite area of concern. However, pressuring your DC Plan provider will do very little. These are not mutual funds. They were until a disclosure and pricing rule forced them to all move back to commingled fund structure. Their reporting guidelines are ridiculous but followed scrupulously by the managers. I've found it impossible to get any useful information from any Stable Value fund managers despite many attempts. A definite area of concern. However, pressuring your DC Plan provider will do very little. These are not mutual funds. They were until a disclosure and pricing rule forced them to all move back to commingled fund structure. Their reporting guidelines are ridiculous but followed scrupulously by the managers. I’ve found it impossible to get any useful information from any Stable Value fund managers despite many attempts.

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