Some financial institutions are choosing to pass on their asset-backed commercial paper(ABCP)losses to their mutual, pooled and segregated fund investors while others have chosen to shield investors from losses, according to Morneau Sobeco.

Industrial Alliance has devalued ABCP holdings in several of the segregated funds managed by their in-house investment team by 15%. And MD Financial has devalued holdings in one of its funds by 10%.

“Morneau Sobeco has been closely following the ABCP story, as we have been concerned about potential losses in capital accumulation plans offered by our clients,” says Greg Hurst, one of the company’s national DC pension practice leaders.

“Until this development we were optimistic that members of these plans would not be affected by the problems associated with ABCP, as we have seen institutions take measures to transfer the risk of illiquid ABCP holdings away from investors in segregated funds, mutual and pooled funds.”

Morneau Sobeco believes it may not be appropriate for institutions to devalue ABCP holdings of segregated, mutual or pooled funds and should instead considering transferring the risks into their general accounts by purchasing such assets at their book value.

“A decision to let segregated, pooled or mutual fund investors absorb ABCP losses seems inconsistent with their prior general assumption of responsibility by financial institutions in respect of money market funds,” Hurst says. “Such a decision is also inconsistent with actions taken by National Bank and possibly other institutions.”

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