Reserve Primary Fund

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The Reserve Primary Fund was the original money market fund, created in 1970 by Bruce R. Bent and Henry B. R. Brown and managed by Reserve Management Company. At its peak it held more than $60 billion in assets.[1] During the financial crisis of 2007-2008 it lost dollar value, or "broke the buck," and was liquidated as a result.


In 2006 Reserve Primary made the decision to purchase commercial paper, an asset class that Bent had dismissed as recently as 2001. By early 2008 asset-backed and financial-sector commercial paper made up 56% of its portfolio. The September 15, 2008 bankruptcy of Lehman Brothers raised concern about Reserve Primary's holdings of Lehman-issued paper, which then made up 1.2% of its portfolio, as well as its other financial-sector paper. Among money market funds, Reserve Primary was especially vulnerable due to its lack of a parent company that might be able to guarantee its share price. Demands to withdraw money from the fund reached 25% of its assets by the afternoon and more than half on the following day, as clients sought to exit the fund before its Lehman assets impacted the share price. Unable to find a buyer for the assets, the fund declared them worthless and announced a share price of $0.97. After the Reserve Primary announcement other money market funds also began to experience runs, leading the United States Treasury to halt orders and temporarily guarantee fund share prices.[2] At the end of the month, the fund's managers announced that they would liquidate the fund.[3]

The Securities and Exchange Commission (SEC) sued Reserve Management and its executives for making false assurances to investors about their ability to maintain the fund's value. A federal court awarded the SEC $750,000 from all parties, a small fraction of the requested damages. The court concluded that the misconduct had been an isolated incident in extraordinary circumstances and was not likely to be repeated.[4] A separate investor class action lawsuit was settled for $54 million.[5]

The fund dissolved in December 2015, having paid investors $0.991 per share.[6][7]


  1. ^ "The Reserve to give back $1B to Primary Fund investors". Associated Press. Sep 23, 2009.
  2. ^ Akay, Ozgur; Griffiths, Mark D.; Winters, Drew B. (2015). "Reserve Primary: Fools Rush In Where Wise Men Fear to Tread!". Journal of Investment Management. 13 (1).
  3. ^ "Important Notice Regarding The Reserve Primary Fund" (PDF). September 29, 2008. Retrieved 2019-10-25. CS1 maint: discouraged parameter (link)
  4. ^ Raymond, Nate; Stempel, Jonathan (September 30, 2013). "US judge awards $750,000 in case of money fund that 'broke buck'". Reuters. Retrieved 2019-10-22. CS1 maint: discouraged parameter (link)
  5. ^ Raymond, Nate (September 6, 2013). "Settlement reached in Reserve Primary Fund lawsuit". Reuters. Retrieved 2019-10-28. CS1 maint: discouraged parameter (link)
  6. ^ "Court approves final distribution" (PDF). September 23, 2014.
  7. ^ "Termination of Primary Fund–In Liquidation" (PDF). November 4, 2015.