Here are the Mutual Fund Firms That Have Lost Money Because of the Puerto Rico Bankruptcy

The total red ink for mutual funds that invested in debt issued by the government of Puerto Rico is as much as $5.4 billion over the past five years, according to a Wall Street Journal analysis of mutual-fund holdings and municipal-bond trades.

According to the Journal, both realized and unrealized losses have been experienced by funds managed by:


Franklin Resources Inc.

OppenheimerFunds Inc.

Vanguard Group

Goldman Sachs Asset Management

Western Asset Management Co.

Lord, Abbett & Co.

AllianceBernstein Holding

Dreyfus Corp.

Mutual funds as a group still hold about $14.6 billion of Puerto Rico’s $73 billion in outstanding bonds after selling off more than $9 billion over the past five years, according to research firm Morningstar Inc.

Two of the above companies, Franklin and Oppenheimer, hold most of the mutual-fund debt, according to Morningstar. Oppenheimer’s paper and actual losses are as much as $2.1 billion, and Franklin’s are as much as $1.6 billion, according to the Journal’s analysis. Franklin has $741 billion in assets under management, while Oppenheimer has $230 billion.

Another six fund families——managed by Vanguard, Goldman, Western Asset, Lord Abbett, AllianceBernstein Holding and Dreyfus—sustained actual and paper losses of up to between $100 million and $200 million on their Puerto Rico holdings, according to the Journal’s analysis.

The calculated losses are based on current market value, which could change over time especially once it becomes clear at what size payout will be made to bond holders.

Bondholder recoveries are expected to be significantly lower than the total dollar value of the bonds’ current market prices unless the federal control board overseeing Puerto Rico allocates more than it has so far, according to analysts, mutual-fund managers and the commonwealth’s former adviser, reports The Journal.

About 45% of the Puerto Rico debt mutual funds currently hold is in funds designated by Morningstar as single-state funds.

Most funds that stocked up on the island’s debt before prices began to slide have fallen behind their benchmarks, according to the Journal’s analysis. That includes 13 of 15 funds that had at least 15% of their assets in uninsured Puerto Rico bonds in the first quarter of 2013. Most of these are single-state funds spanning the U.S., from New York to Arizona. Two of those lagging funds closed in 2013 and 2016.

The Journal notes, how much mutual funds and other creditors in Puerto Rico get back will depend in large part on which securities they own. For example, general-obligation bonds carry some of the commonwealth’s strongest legal pledges, and holders of those bonds may fare better than many other investors.

 -RW

Sources:
The Wall Street Journal
Morningstar