SRI firm Calvert asks SEC to allow its funds to lend to each other to aid liquidity (Amended)

$12.4bn asset manager requests approval for ‘interfund lending facility’

(Amends to add that Calvert first applied to the SEC in August 2015 and includes statement from the company.)

Calvert Investments, the US-based socially responsible investor, has asked the Securities and Exchange Commission (SEC) to allow its mutual funds to lend to each other on a temporary basis to boost short-term liquidity if needed.
In an application with the SEC, first made in August 2015, Calvert gave two key reasons for why it was making the request for the arrangement, known as an ‘interfund lending facility.’ Through 41 mutual funds, Calvert, based in a Washington D.C. suburb, has $12.4bn (€11.4bn) under management. A further filing of an amended and restated application went to the SEC this week.
According to Calvert, the first reason is that its funds had to be prepared for contingencies like a sudden spate of shareholder redemptions. It said in a filing: “When the funds liquidate portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days or longer. The redemption requests, however, normally are satisfied promptly upon receipt.
“The facility would provide a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities.”Going to banks for the liquidity was not a good option, as this would increase the funds’ borrowing costs and expose them to flat fees, Calvert said in its most recent filing.
It also said the move would boost returns for its funds. “Funds making short-term cash loans to other funds would earn interest at a rate higher than they otherwise could obtain from investing their cash in repurchase agreements or other substantially equivalent short-term investments,” Calvert said in the SEC filing.
The company said: “Throughout 2015 Calvert Investments’ new management team has been implementing a complex-wide plan to enhance our focus on shareholders. This includes reducing fees for many funds, enhancing research capabilities and aligning most strategies under our Principles for Responsible Investment.
“As part of our emphasis on efficiency, we complied with SEC’s application process for interfund lending this past summer. We embraced the opportunity to lay out our program and its safeguards. This lending approach, which is employed by many firms, will help us lower potential borrowing costs and proactively position us to best serve shareholders if volatility picks up.”