On Friday,
Fidelity Investments, Federated Investors Inc. and The
Charles Schwab Corp. became the latest companies to announce they soon will begin disclosing their money market funds' net asset values each day.
BlackRock Inc., The
Goldman Sachs Group Inc. and JPMorgan Chase & Co. made similar announcements earlier in the week.
Together, the six companies oversee $1.38 trillion in money fund assets, or about 54% of the industry.
Some of the companies contend that the heightened transparency will make clear to investors the true value of their funds. Even though share values may fluctuate, the companies will continue to redeem shares at $1.
“We believe this more frequent reporting can serve as an indicator of the stability of our money market products for investors looking for near-real-time information,” said
Charles Schwab Investment Management president Marie Chandoha.
The moves come as regulators consider tougher regulation of the money fund industry, which nearly collapsed in 2008 when the Reserve Primary Fund “broke the buck” and a run on the funds ensued.
The Securities and Exchange Commission's efforts to impose tighter regulations fell apart late last year when then-Chairman Mary Schapiro couldn't muster enough votes to put the proposals out for public comment. The Financial Stability Oversight Council has taken up the issue and is mulling new money fund regulations, including one that would require funds to move floating NAVs.
"ADDITIONAL TWEAKS'
“I don't think this alone is enough to sway the FSOC, but it may get people thinking about additional tweaks and disclosures rather than a radical change,” said Pete Crane, president of money market research firm Crane Data LLC.
Diane Pearson, a wealth manager at Legend Financial Advisors Inc., is encouraged by the new disclosures, as well.
“It's good information from a consumer standpoint,” she said. “Ninety percent of the people that have a money market fund have no idea it's invested and not a reserve account.”
But the flip side of the added disclosure is that it may actually do more harm than good, some argue.
“They're trying to increase transparency, but it seems like they're just adding new elements that can add confusion,” said Mike Krasner, managing editor of iMoneyNet, a money market research firm. “Now companies are going to have to explain to clients why there are two NAVs.”
Last Wednesday, Goldman Sachs, which has $142 billion in money market assets, started disclosing daily prices of its money funds, becoming the first firm to do so.
CALLS FOR TRANSPARENCY
The firm made the change because of greater calls for transparency from its shareholders, which are largely institutional clients, Goldman spokesman Andrew Williams said.
JPMorgan, the second-largest money market fund provider, with $242.9 billion in money fund assets, quickly followed suit, as did BlackRock, which has $158 billion.
The largest provider, Fidelity Investments, which has $425 billion in money fund assets, on Friday joined the mini revolution, as did Federated, which has $242.8 billion, and Schwab with $164.9 billion.
“Clearly, there's a lot of momentum,” Mr. Crane said. “We've never seen the fund industry voluntarily get together without an SEC mandate before.”
The industry, led by the Investment Company Institute, its lobbying arm, maintains that a floating NAV would “undermine money market funds' convenience and simplicity, and confront investors with new accounting, tax and legal complications,” according to a statement from the ICI over the summer.
In addition, the lack of a stable NAV could force large institutions and municipalities to leave the funds en masse because of their investment mandates, the ICI argued.
The changes enacted last week by the six companies seem to bridge the gap between the two sides.
The providers now offer investors a look at day-to-day share values — transparency the SEC claims has been lacking — while still maintaining the stable $1 share that large investors covet.
“It's certainly meant to convince investors that the actual NAVs don't really float anyway,” Mr. Crane said.
“It's extremely rare that a fund deviates more than a thousandth of a cent from one day to the next,” he said. “It really takes an event to move the NAV.”
Money market fund NAVs can legally vary anywhere from $1.0050 to $0.9995 per share while still maintaining their $1-per-share price.
The potential consequence of an “event” that moves money fund NAVs dramatically is what spurred on regulators in the first place.
At least one company doesn't plan to make the switch to disclosing daily NAVs.
The Vanguard Group Inc., which has $168 billion in money market assets, said it won't follow the crowd.
“We have not seen an increased demand for more-frequent disclosure from our clients, who are primarily retail investors,” Katie Henderson, a spokeswoman, wrote in an e-mail.
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