Northern Trust to close mutual fund after redemptions

CHICAGO: Northern Trust Corp is shutting down a money-market mutual fund after volatility in March spurred redemptions that sent it below a regulatory threshold for maintaining liquidity.

The Us$1.7bil Northern Institutional Prime Obligations Portfolio will stop accepting new investments next month and start selling its holdings under a liquidation plan set for July 10, according to a recent filing.

As a prime fund, it can invest in riskier securities than traditional money-market funds, including commercial paper, the term for short-dated bank debt and corporate IOUS.

“The board of trustees has determined, after consideration of a number of factors, that it is in the best interests of the prime obligations portfolio and its shareholders that the portfolio be liquidated and terminated,” the company said in its filing with the US Securities and Exchange Commission.

A spokesman for Chicago-based Northern Trust didn’t immediately have a comment.

Prime funds suffered about Us$150bil of outflows during the pandemic-fuelled market sell-off in March, according to research firm Crane Data LLC, though much of the money has returned since the US Federal Reserve stepped in to backstop the industry.

The Northern Trust fund, however, hasn’t recovered roughly Us$2bil in assets that left in March, according to data compiled by Bloomberg.

Firms including Goldman Sachs Group Inc and Bank of New York Mellon Corp bought billions of dollars of securities from their prime funds when markets seized up, enabling them to stay above a 30% weekly minimum of cash and cash-like securities.

Once a money-market fund goes below that level, the board can suspend withdrawals or charge a fee for redeeming, according to rule changes adopted after the last financial crisis.