Wachovia Fund Freeze Will Affect UVa-Wise

Wachovia Bank’s decision to freeze the accounts of about 1,000 colleges and schools in a $9.3 billion fund it manages affects at least one area college, the University of Virginia’s College at Wise, although it was not immediately clear to what degree.

With financial markets in a tailspin, Wachovia on Monday decided to liquidate the assets and resign as trustee of a short-term fund managed by Commonfund, a giant investment management nonprofit based in Connecticut.

For 34 years, the short-term fund has been popular among a wide range of schools as a financial vehicle that garners returns above U.S. Treasury bills, while allowing quick, regular access to capital.

It is that access that the bank moved to restrict by limiting its clients to withdrawing just 10 percent of their investments. The fear, according to officers for Wachovia and Commonfund, was that panicked investors might try to redeem all at once and jeopardize returns for all clients.

By Thursday, the fund’s clients could access approximately one third of their investments, according to a Wachovia spokesperson, and the group expects to free up 57 percent of each client’s account by Dec. 31 – when the fund is set to expire.

The bank made its move to “ensure fair and equitable treatment and the orderly distribution of assets,” said Laura Fay, the spokesperson, citing “unprecedented” instability in financial markets. Fay said the decision was “not even remotely related” to Citigroup Inc.’s acquisition of Wachovia’s banking operations on the same day – a government-orchestrated deal to save the bank from failure.

Commonfund, which manages a total of $41 billion of funds including the short-term fund, issued a statement Tuesday affirming that no securities “have defaulted and all continue to pay timely principal and interest.”

A spokesperson for Commonfund declined to identify its clients, saying only that the short-term fund had 33 investors in Virginia and eight in Tennessee. Investors in the fund include public and private colleges and universities, as well as private secondary schools.

But Commonfund lists its clients on its tax returns, and the most recent – for financial year 2006 – includes UVa-Wise and the University of Virginia Foundation.

UVa-Wise officials confirmed Thursday that the college invested in Commonfund’s short-term fund but declined to provide any figures, deferring to the University of Virginia’s administration in Charlottesville. Officials at UVa had not responded to inquiries by Thursday evening.

Roger Hagy, a spokesperson for UVa-Wise, said the college was consulting with its parent institution and Commonfund about the money now tied up in the short-term fund, but provided no further detail.

Emory & Henry College also is a client of Commonfund, but not of the short-term fund with restricted liquidity.

“We are not affected by this,” said Dirk Moore, E&H director of public relations, of the freeze.

He pegged the school’s investment in Commonfund at $19 million, out of a total endowment of approximately $100 million.

“We’re a pretty sound institution financially,” he said. “But we’re still worried like everybody else what the current financial crisis means for our investments.”

No other local schools appear on Commonfund’s most recent tax return, and officials at King College, Virginia Intermont College and East Tennessee State University all said Thursday they had nothing invested in the nonprofit.

In recent months, the short-term fund has been affected by the volatility coursing through financial markets, largely concentrated in mortgage- and other asset-backed securities, which make up between 15 and 20 percent of the fund’s investments.

By Monday, the credit markets were so dry that not even Commonfund’s highest quality securities were trading, according to fund spokesman Keith Luke.

Commonfund’s greatest priority, he said, is “to do whatever we can to help increase liquidity,” particularly for institutions that do not have sufficient cash to meet their operating needs.

In a statement released Tuesday, Commonfund said: “We are looking at a variety of options and have reached out to a number of banks to determine if they can extend credit to such institutions.”

Luke confirmed that Commonfund is “talking to a number of banks,” and also is looking for a successor trustee before the short-term fund expires at the end of the year.

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