As comments continue to stream into the Securities and Exchange Commission (SEC) regarding reforms to money market funds that were discussed in the President's Working Group (PWG) on Financial Markets's report released last October, the proposals for a floating net-asset value (NAV) are getting lots of opposition. The comment period expired on Jan. 10.
For instance, Vanguard told the SEC in its comment letter that floating NAV proposals "do nothing to make money market funds more robust in the face of adverse liquidity conditions. They merely change accounting mechanics and make investment in, and management of, money market funds more complex."
One area of recent reforms to money market funds implemented by the SEC is requiring money market funds to report their "shadow" NAV on a 60-day delay basis.
The Association for Financial Professionals (AFP) notes in its 2011 Business Outlook Survey, released on Tuesday, that the first reports regarding "shadow" NAV will be made public on Feb. 7, and that the "reported shadow NAV of the funds could deviate from the stated $1.00 per share value." AFP noted results of a survey of financial professionals that it performed which found that three out of five survey respondents (59%) indicated that releasing the 60-day shadow net asset value (NAV) will have an impact on their organizations' investment decisions related to money market funds. The 53% figure, AFP said, is a "significant increase from the 43% of financial professionals who held this view in May of 2010 (and reported in the 2010 AFP Liquidity Survey), and perhaps reflects a greater understanding of the impact of the new reporting rules."
AFP went on to report that 39% of survey respondents "anticipate their organizations will either reduce or completely eliminate money market funds from their short-term investment portfolios because of the possibility of a NAV falling below $1."
Some financial professionals, AFP said, believe that money market funds "should drop the $1.00 fixed asset value of the funds for a floating NAV" because such a move would provide for greater transparency for investors. Others, however, AFP says, "suggest that the move would introduce significant volatility to the funds, making them less viable as a short-term investment vehicle for companies."
The PWG indicated in its October 2010 report that switching money-market funds to a floating NAV could reduce risk, but gave only measured support for such a change, AFP notes. Switching to a floating NAV, the PWG report said, "would have potential benefits, but those benefits would have to be weighed carefully against the risks that such a change would entail."
Still, AFP notes, "a majority of financial professionals—54%—would not support dropping the $1.00 fixed asset value for money market funds for the implementation of a floating NAV. Just 14% would support such a move."
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