Firms Close Some European Funds to New Investment

--J.P. Morgan isn't allowing investors in five of its funds

--Goldman Sachs Asset Management isn't accepting subscriptions in its GS Euro Government Liquidity Reserves Fund

--BlackRock placed subscription restrictions on two of its funds

J.P. Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and BlackRock Inc. (BLK) are closing several European money-market funds to new investment after the European Central Bank slashed deposit rates to zero.

These funds and others have struggled to provide returns to investors since central banks in Europe, the U.S. and Japan cut interest rates to near zero during the recent financial crisis.

The ECB has held rates slightly above those of the Federal Reserve and Bank of Japan, but the deposit-rate cut and a 25-basis-point reduction in its benchmark lending rate Thursday signaled that the days of European funds enjoying slightly higher yields may be ending.

By closing the funds to new investment, the fund managers are protecting their current investors by not dividing the meager returns earned among more stakeholders.

J.P. Morgan, which has the largest euro-denominated funds, isn't allowing new investors in five of its funds.

"We made the decision to impose temporary restrictions on our euro-denominated money market funds because we think it will help prevent further dilution in yields, which is in the best interest of our clients," a company spokeswoman said in an emailed statement Friday.

There are no restrictions on redemptions or switches out of the funds, the bank said on its website.

Of the total $137 billion in euro-denominated money market funds, J.P. Morgan manages about $30 billion, BlackRock manages about $23 billion and Goldman Sachs manages about $13 billion, according to Peter Crane, president of Crane Data.

Goldman Sachs Asset Management isn't accepting subscriptions in its GS Euro Government Liquidity Reserves Fund effective immediately, but redemptions aren't affected. A second euro fund, the GS Euro Liquid Reserves Fund, wasn't closed to investors.

The ECB rate cut means "it is not currently feasible for our portfolio managers to deploy capital without substantially diluting the yield for the existing base of shareholders, since new inflows would have to be invested in securities issued at extremely low or negative yields," the company said in a memo to its clients.

BlackRock has placed similar subscription restrictions for two of its funds: the Institutional Cash Series -- Institutional Euro Liquidity Fund and Institutional Cash Series -- Institutional Euro Government Liquidity Fund.

"We're continuing to monitor the situation and evaluate options that are consistent with the best interest of fund shareholders," company spokeswoman Jessica Greaney wrote in an email. "In some cases intermittent subscriptions may be considered."

European funds were yielding 0.14% as of Thursday, according to Peter Crane, president of Crane Data. It would take about a month for the cut in ECB rates to bring down yields even further.

By contrast, U.S. money-market funds are yielding, on average, 0.06%, Mr. Crane said.

"Investors in Europe wanted to get into the funds because the funds were yielding more than the market," he said.

Now, they may have to find other avenues for investment.

Other companies that have euro-denominated money-market funds include BNP Paribas SA (BNP.FR, BNPQY), Bank of New York Mellon Corp. (BK), Bank of America Corp. (BAC), Federated Investors Inc. (FII), Deutsche Bank AG (DB, DBK.XE), HSBC Holdings PLC (HBC, HSBA.LN, 0005.HK), Invesco Ltd. (IVZ), Morgan Stanley (MS) and Royal Bank of Scotland Group PLC (RBS, RBS.LN), Mr. Crane said.

Write to Anusha Shrivastava at [e-mail]