Floating NAV for money market funds is not seaworthy, critics say

Industry watchers are skeptical of plans by DWS Investments to launch a money market fund that does not seek to maintain a stable share price of $1.
The DWS Variable NAV Money Fund, to be advised by Deutsche Investment Management Americas Inc., would instead opt for a floating net asset value based on daily mark-to-market pricing and a starting price of $10 per share, according to a prospectus filed Aug. 31.
A floating-rate NAV is among the concepts the Securities and Exchange Commission is considering to make money funds more resilient to certain short-term market risks, and to provide greater protections for investors in a money fund that is unable to maintain a stable net asset value per share.
The SEC turned its attention to refining the rules governing money funds after The Reserve Primary Fund, offered by the Reserve Management Co. Inc., fell below its net asset value of $1 last year, triggering a run on money market funds.
DWS Investments, however, is jumping the gun by announcing plans for a money fund with a floating NAV before the SEC makes a final decision, said Peter Crane, president of Crane Data LLC, a money fund tracking firm.
There is a lot of opposition to the idea because many industry experts —including him — believe a floating-rate NAV would actually make things worse, he said.
“It’s fraught with peril and confusing to the market place,” Mr. Crane said.
Other financial advisers agree.
“A floating-rate NAV creates more uncertainty,” said Robert Poavlick, chief market strategist for Banyan Partners LLC, which has $350 million under management.
If the DWS money fund were to come into existence, he said, he wouldn’t recommend it to his clients.
Neither would Lewis J. Altfest, president of Altfest Personal Wealth Management, which manages about $500 million in assets.
Even though the fund would adhere to rules regarding liquidity and credit quality, having a floating NAV makes it much less attractive to investors, he said.
DWS isn’t commenting on the fund because it’s in registration.
But in an Aug. 31 comment letter on the proposed amendments to SEC rules that govern money funds, Joe Benevento, a managing director with Deutsche Investment Management Americas, defended the floating NAV concept.
“By introducing an alternative solution, we would offer a choice between both stable and floating net asset value money market funds allowing investors to decide which type of money market fund to invest based upon their investment objectives,” he wrote.

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