JP Morgan Fund does use side pockets idea..

This blog had pointed to a solution proposed by Prof JR Varma on its mutual fund mess. He had suggested that the fund should keep the bad asset away from its portfolio (in a side pocket). The fund could say business as usual based on the remaining value of the portfolio (which was about 95%).

The fund has decided to go ahead with this side pocket idea (not sure whether they read the idea). BS explains:

JPMorgan’s mutual fund will seek the approval of unit holders of its India Treasury Fund and India Short Term Income Fund to segregate the assets they hold from a single security, Amtek Auto.

Amtek is considered no longer of investment grade and is currently illiquid. The approval is to be sought by a simple majority, through postal ballot. As a result of the proposed segregation, the net asset value of the existing units in the schemes would drop by the value representing the illiquid segregated asset. All unit holders on the date of record would receive proportionate units, to reflect their interest in the value of the segregated asset.

Both MF schemes together have an exposure of Rs 200 crore or 6.75 per cent of total assets under management in debt issuances by Amtek. The shares of the company lost 70 per cent on the stock exchanges in August, to a six-year low.

Nice to see..

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