The Puget Sound Business Journal reported Friday (in "Fund woes freeze some Costco cash") that Costco Wholesale Corp. is "among a handful of publicly traded companies in Washington trying to pull out of what are called 'enhanced cash funds' and reporting losses from those investments on their balance sheets." The piece says Costco had $1 billion in enhanced cash funds at one point and now holds $371 million in three ("3c-7" private placement) funds -- Columbia Strategic Cash, BlackRock Cash Strategies and Merrill Lynch Capital Reserve Fund.
The article says that Costco has taken a "$2.8 million writedown" and continues, "In recent filings with the Securities and Exchange Commission, the three companies say they expect more of their funds will be available later this year, although the companies reported there could be more losses and they are not certain how long it might take to get access to all their money."
The piece says, "The Columbia Strategic Cash Portfolio Fund was the largest of the enhanced private fund pools, with about $40 billion invested, said Peter Crane, who tracks the money-market industry through his Boston-area company, Crane Data LLC. Overall, about $200 billion in investments were tied up in enhanced cash funds, said Crane."
The entire "enhanced cash" sector appears to have evaporated. Crane Data estimates that it now totals a mere $35 billion, and is likely on its way to zero. However, forgotten in all the panicky headlines is the money that was made in additional yield, amounts that still dwarf the actual realized losses seen in the sector. While it will take some time, we believe enhanced cash will eventually claw its way back. In the meantime, though, look for more stories on loss disclosures taken by large investors.
