According to InvestmentNews, investors in Puerto Rico closed-end municipal bond funds packaged and sold by UBS Financial Services, Inc. of Puerto Rico reportedly lost over $1.5 billion between January and September 2013.
UBS Financial Services, Inc. of Puerto Rico marketed its UBS Puerto Rico Family of Funds to residents of Puerto Rico. According to UBS marketing materials, it sold $10 billion of the proprietary closed-end bond funds in the past decade. InvestmentNews reports that, of the nineteen closed-end bond funds contained in the UBS Puerto Rico Family of Funds, the largest percentage of losses were in the funds holding concentrated positions of Puerto Rico municipal bonds underwritten by UBS.
Securities Litigation & Consulting Group, securities consultants for plaintiffs’ attorneys and state securities regulators, estimate that the worst performers of the UBS Puerto Rico Family of Funds suffered losses ranging from 38% to 48%. Conversely, the four UBS Puerto Rico closed-end bond funds that only invested around 5% of their assets in bonds issued by the Puerto Rico Employees Retirement System and the Sales Tax Financial Corp. have declined only 16.3% on average. During the same period, Standard & Poor’s Municipal Bond Puerto Rico Index declined 17%.
According to UBS marketing materials, at least 67% of each of the Puerto Rico closed end bond fund’s assets are invested in taxable and non-taxable securities issued by Puerto Rico issuers. The remaining one-third of each bond fund’s assets is invested in both taxable and non-taxable securities issued by non-Puerto Rico issuers.
UBS’ nineteen closed-end municipal bond funds each issued a fixed number of shares. After the initial offering of the bond funds’ shares, the funds have been traded exclusively on a secondary market between investors. None of the closed-end municipal bond funds contained in the UBS Puerto Rico Family of Funds are listed on any exchange. UBS has historically facilitated secondary market transactions for its clients by maintaining a trading desk that quotes bid and offer prices and by executing the trades.
For additional information on losses in the UBS Puerto Rico Family of Funds, including how to bring a claim to recover losses, click here.