Some money market funds might hold Lehman Brothers debt or debt in other troubled companies. http://www.ft.com/cms/s/0/696e3dc0-84e4-11dd-b148-0000779fd18c.html Fear of money market funds âbreaking the buckâ By Deborah Brewster in New York and Joanna Chung in Washington Published: September 17 2008 19:32 | Last updated: September 17 2008 19:32 Operators of money market funds, which manage a record $3,500bn, were on Wednesday rushing to reassure investors while bracing themselves to make further bail-outs of their funds. There were fears of a run on funds following news that one had âbroken the buckâ. Wachovia said it would back $494m (â¬350m, Â£280m) worth of Lehman Brothers debt held in its Evergreen money market funds, rather than let the funds fall below the amount investors paid in â or âbreaking the buckâ. The Reserve Primary Fund, the oldest in the US, said on Tuesday night that investors could lose money as a result of it holding debt in Lehman, which has filed for bankruptcy. It is the first time in 14 years the value of a money market fund has been allowed to fall below the amount investors paid in and is a signal that ripples from the financial crisis have begun directly to affect retail investors. Money market fundsâ safety has been of serious concern to regulators because they are considered by retail investors to be as secure as a bank account â but they have lost value during the credit crisis and are not backed by any government guarantee. In a sign that it expected further bail-outs, the US Securities and Exchange Commission said on Wednesday that management companies providing support for their money market funds did not have to bring the fundsâ assets on to balance sheets. Fund group parents â such as Wachovia and Legg Mason â have already spent more than $8bn since the start of the credit crisis bailing out their money market funds to prevent them from âbreaking the buckâ, fearing this could trigger a run on the funds and inflict lasting reputational damage on the parent company. Money market funds have attracted huge inflows in the past year as investors have looked for a safe haven amid credit market turmoil and faltering stock markets. Invesco, which has $90bn in money market funds, on Wednesday said: âNone of our US money market portfolios has any exposure to Lehman Brothers, AIG or Washington Mutual.â Both Deutsche Bank and Fifth Third told investors their money funds held no Lehman or AIG debt. Northern Trust, another big operator, said it held Lehman debt as well as stock in its funds â it did not specify which funds â and it was actively monitoring the holdings. Legg Mason said its money market values remained stable. Regulatory officials have heightened their vigilance of the funds in recent weeks. On Wednesday the SEC told investment managers that on-balance sheet accounting for supported money market funds was not required if the sponsoring financial institution did not âabsorb the majority of the expected future risk associated with the money market fundâs assetsâ. However, SEC staff would expect adequate disclosure of the nature of the support provided. âAs a result of recent market events, it is possible that some money market funds could become exposed to declines in the creditworthiness of troubled assets,â the SEC said. âTo protect investorsâ principal investment in these funds, sponsoring financial institutions can provide various types of financial support.â Only once before has a money market fund seen its net asset value fall below $1 a share. In early 1994 Community Bankers Mutual Fund was adversely affected by quick changes in interest rates.