The losses from soured investments in Puerto Rico bonds are coming into focus for some of the world’s biggest mutual funds, and it is a brutal reckoning, the Wall Street Journal reported yesterday. The total red ink for mutual funds that invested in debt issued by the troubled island commonwealth is as much as $5.4 billion over the past five years, according to a Wall Street Journal analysis of mutual-fund holdings and municipal-bond trades. Those losses, which are both actual and unrealized, were tucked inside a wide range of funds managed by Franklin Resources Inc., OppenheimerFunds Inc., Vanguard Group, Goldman Sachs Asset Management, Western Asset Management Co., Lord, Abbett & Co., AllianceBernstein Holding and Dreyfus Corp., which is part of BNY Mellon Investment Management. The damage done to mutual-fund bets is one reason why a court-supervised restructuring of Puerto Rico’s debt that starts this week with a hearing in San Juan is expected to become such a lengthy battle. Many mutual-fund firms have greater incentive to agitate for maximum recovery — and have greater potential for losses — because they purchased debt closer to par values. Mutual funds as a group still hold about $14.6 billion of Puerto Rico’s $73 billion in outstanding bonds after selling off more than $9 billion over the past five years, according to research firm Morningstar Inc.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
