Money Fund Insurance on the Comeback?

Years ago, Fidelity pioneered the concept of insurance for money market mutual funds. While it didn’t cover the whole $1.00 NAV, it was designed to cover “isolated defaults” or bolts from the blue. The insurance was launched around 1998, but was discontinued following the 9/11 attacks and following the default of Pacific Gas & Electric — events which caused insurance premiums to skyrocket.

Some money funds may still have these “isolated default” or even NAV protection policies in place, but most undoubtedly followed Fidelity’s lead in letting their policies lapse. In the past, Federated, Vanguard, USAA and UBS were among those with these insurance policies.

Given recent events, we’re seeing a renewed interest in the possibility of protecting the advisors, or I mean the investors, from any of these liquidity seizure events. As we’ve seen in the past, it’s almost always “money good”. The only challenge is riding out the panic wave and holding until cooler heads prevail.

I’d love to hear any thoughts or questions, and am currently researching this topic to possibly do a more extensive article in upcoming January issue of our Money Fund Intelligence.


1 Response to “Money Fund Insurance on the Comeback?”

  1. 1 justin rose January 3, 2008 at 8:33 pm

    JP Morgan have a Euro Fund domiciled in Dublin where I believe ABN AMro have underwritten the NAV at end of each half year period.

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