More mutual fund companies seek protective lines of credit

September 22, 1996|By BLOOMBERG BUSINESS NEWS

BOSTON -- The number of U.S. mutual fund companies requesting protective lines of credit from banks is up about 50 percent from a year ago, according to bank officials.

"We've seen a boom in the number of funds looking for committed lines of credit protection," said Richard Klein, managing director at Chase Securities Inc., a Chase Manhattan subsidiary that arranges lines of credit for funds.

The increase is tied to fund groups' desires to guard against unforeseen shareholder redemptions and the realization that the cost of such protection is "relatively small," Klein said.

J. & W. Seligman Co., which has about $17 billion in assets under management, is among the fund groups to take such action this year.

The New York investment firm entered into a committed line of bank credit for its mutual funds that amounts to about $440 million, said Brian Zino, managing director at J. & W. Seligman.

"We are concerned that at some point, if the market gets volatile, we could get hit with higher levels of redemptions, and we don't want to be forced to take short-term portfolio actions that aren't in the best interests of the funds," Zino said.

The costs of the credit line to the funds are minimal, Zino said. "It's about 1 basis point or less for each fund," he said.

Almost no funds had these types of credit facilities in place when the stock market crashed in 1987, said Joseph Belanger, vice president at State Street Bank & Trust Co. in Boston, who is in charge of the bank's mutual fund lending group. Now, many do, though the exact number is hard to pinpoint, he said.

"We have increased our business in arranging credit line facilities to funds by 50 percent in the past year," Belanger said.

Pub Date: 9/22/96

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