UVM investment fund tied up in financial crisis

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(Host) The University of Vermont was swept up in the national financial crisis this week when $79 million of its cash deposits were frozen.

UVM says it’s gotten access to some of its money, but it could be two years before it’s all returned.

VPR’s Ross Sneyd has more.

(Sneyd) Cash flow for about a thousand colleges around the country seized up this week when Wachovia Bank had to be rescued.

Finance vice president Richard Cate says UVM has been able to make do in the meantime.

(Cate) “We’re paying the bills. This is really a short-term problem in that we have to deal with this over the course of the next three months and we’re building a plan to do just that. We’re going to probably secure a line of credit to have a backup plan as we go through this. And by late December tuition revenues will start coming in and we’ll be out of this cycle and we’ll be fine.”

(Sneyd) UVM’s situation illustrates how the problems on Wall Street have landed at the feet of otherwise healthy institutions.

UVM has no direct relationship with Wachovia, the huge North Carolina-based bank that ran into problems this week. But because of the interrelationships of financial institutions, that didn’t matter.

Like any business, the university has a reserve of cash on hand so it can pay its bills and make payroll.

For several years, Cate says, UVM has put that money into the Common Fund for Short Term Investment – what amounts to a super savings account for colleges and other nonprofits.

(Cate) “What happens is it’s an operating account where the money is invested for the short term, we get a higher rate of return than we would if we put it into the bank down the street. It’s been a plan that’s been in place in excess of five years.”

(Sneyd) But the trustee of the fund is Wachovia. So as its own future unraveled, it froze billions in the fund.

UVM and other institutions were allowed to withdraw just 10% of their assets initially. They’ve since gotten about twice that amount. By the end of December, they’ll be able to reclaim 57 percent of their holdings.

But it will be 2010 before all of the university’s cash is returned, except for some that’s in longer-term investments.

State officials say this is just what they’ve feared.

Treasurer Jeb Spaulding.

(Spaulding) “It’s just an illustration to me of the fact that the freeze-up in the credit markets is going to impact employers and entities here in Vermont eventually.”

(Sneyd) Administration Secretary Neale Lunderville says the state has tried to monitor other institutions.

(Lunderville) “We know Vermonters are very uneasy about this and there’s some anxiety about this. But we also know that in Vermont the banks here in Vermont are in, generally speaking, very good shape. … Our Banking and Insurance division has been monitoring this very closely, been talking with banks and credit unions all across the state and the reports that we’ve received back have generally been pretty good with Vermont banks.”

(Sneyd) Spaulding says even a federal bailout bill wouldn’t completely settle the financial markets. But he says it would help to restore confidence in the system.

For VPR News, I’m Ross Sneyd.

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