Northern Trust Corp’s decision to liquidate a $1.8-billion prime money market fund was seen as an outlier event by industry analysts on Wednesday, but one that could portend more problems depending on how the economy fares.
Money has rushed back into prime funds since the sector suffered major withdrawals in March, according to figures from researcher Peter Crane. Total prime fund assets stand at $1.1 trillion, with less than $1 billion of net customer withdrawals for the year to date.
One fund that has not seemed to benefit from the comeback is Northern Trust’s (NTRS.O) Prime Obligations Fund (NPAXX.O) which recently had close to $4 billion in assets.
In filings on Monday, the company said its fund board determined to liquidate and terminate Prime Obligations 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.[nL1N2BG19H] Asked about the liquidation, Northern Trust spokesman Doug Holt said “this decision was specific” to the fund.
Prime funds own a range of government, bank and commercial instruments. Other firms have injected cash into their prime funds or closed them to new investors, and the sector has received Federal Reserve support.
Crane said Northern Trust’s actions seem unique given the fund’s small scale and the broader industry comeback. A bigger issue could be low interest rates that lead firms to waive fees, he said.
Analyst Brian Reynolds of Reynolds Strategy LLC said more funds could liquidate if efforts to stimulate the economy don’t succeed.
“The risk over the rest of the year is that more funds start to see redemptions as clients burn through cash that they just borrowed,” he said.