The Wells Fargo Stable Return Fund last week began limiting investments, the latest such fund restricting inflows over concerns that new money in a continuing low-interest-rate environment will lower yields for existing investors.
Only plans that have a record-keeping and trustee relationship with Wells Fargo can enter the $29.9 billion fund as new investors, said David Ferry, senior director at Galliard Capital Management Inc., the fund's adviser.
“If the fund had accepted an unrestricted amount of new money in this low-interest-rate environment, we had concerns that there could be a dilutive effect on the [actual earning rate posted to investors' account balances],” Mr. Ferry said.
Wells Fargo's decision, known as a soft close, “makes sense (for some funds) so they don't have to do a hard close later,” said Christopher Lyon, a partner at Rocaton Investment Advisors LLC. “Letting in a lot of new money [when interest rates are low] is dilutive in terms of future returns.”
Low interest rates and concerns about wrap capacity — the availability of affordable insurance products that guarantee the book value of the underlying bond investments — were the reasons for the liquidation of several funds in 2012, including ones at The Charles Schwab Corp., SEI Investments Co. and Union Bank NA.
Invesco Ltd. closed its $6.31 billion fund in April 2011. “The sole reason we entered limited-offering status was due to the industrywide constraints in the wrap contracts,” Bill Hensel, director of media relations, wrote in an e-mail.
The Bank of New York Mellon Corp. initiated a soft close last January for its $1.2 billion fund, and Putnam Investments enacted a soft close in November 2011 for its $6 billion fund. The Vanguard Group Inc. has had a soft-close policy for its $19 billion stable value fund since late 2008 or early 2009, spokeswoman Linda Wolohan said.
Robert Steyer is a reporter at sister publication Pensions & Investments.
