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Wachovia Bank has frozen a fund that invests cash for about 1,000 colleges and private schools nationwide.  The fund is managed by a Connecticut-based non-profit organization.

Wachovia acted as Trustee for the $9.3 billion fund. On Monday the struggling bank announced it was resigning as trustee and limiting access to the money. Initially investors could only get to 10% of their balance.  That’s been increased to 36%.  

Wilton-based Commonfund manages the fund.   Commonfund’s Managing director Keith Luke says some schools use the money for operating expenses and they could be hit hard.  

"Those institutions that use this particular investment fund as their sole source of liquidity for their operating needs including payroll and other expenses it hurts them significantly for the short term.  Those institutions which have other sources of liquidity,  access to other bank lines of credit are less impacted."

Luke blames distress in the credit markets for Wachovia’s action,  but says there have been no defaults of any securities in the portfolio.  The freeze affects more than 40 Connecticut educational institutions.  

Under pressure from the Federal Deposit Insurance Corporation, Wachovia was forced to sell its banking operations to Citigroup.