Stressed investors flee money market funds

n an extraordinarily unusual development, Putnam Investments shut its $12.3 billion Prime Money Market Fund on Thursday as the typically risk-averse industry continued its struggle to reassure skittish investors that their cash is safe.

Many Putnam investors wanted out. The firm, which is for institutional investors, said in a statement that it will pay everyone at the same time to be “equitable” to all. Meanwhile, shares in State Street, Federated Investors and other investment firms slumped over concerns that their money market funds will suffer losses.

 

Q&A: Answers to questions about money market funds

 

Unlike bank deposits, money market funds are not insured by the Federal Deposit Insurance Corp. They have long been considered to be safe because the money is invested in short-term Treasury bills and IOUs from sound corporations.

Investors grew concerned about money markets, though, on Monday after Lehman Bros., a major issuer of commercial paper, filed for bankruptcy court protection.