At least three big players in the money market fund industry have decided to publish the daily net asset value of their funds. But does it really mean much in the grand scheme of things? Probably not, experts say; however, the daily values will be instructive.
On Wednesday Goldman Sachs announced it would begin publishing so called “shadow” NAV on a daily basis for its “US-domiciled Commercial Paper Money Market funds.” JPMorgan will do so on January 14 as will, reportedly, BlackRock.
“I think they’re just throwing regulators a bone,” says Peter Crane of money fund research firm Crane Data. “But they’re also trying to combat some of the misperception that’s been created by regulators that fund share prices are an accounting fiction.”
The Securities and Exchange Commission along with the Federal Reserve has for more than a year been trying to impose strict rules on MMFs to make them safer, including a “floating net asset value” regime that would end the stable NAV that funds have used for decades. SEC Chairman Mary Schapiro has argued that the funds’ dollar share price encourages investors to flee at the first sign of trouble, as they did in 2008 when Reserve Primary Fund famously “broke the buck.”
But the “buck” really isn’t a fiction, Mr. Crane says, because MMFs really don’t stray that far from a dollar. “In what world is 0.999 cents not a dollar?” he says. Goldman and JP Morgan et al are “just taking the risk that there won’t be substantial event” that takes the NAV of their various funds too far from the dollar; they’re just showing the world that “the shadow NAVs don’t differ materially from the rounded NAVs.” And there likely won’t be a difference, he adds, even if the industry moves to a floating NAV. The assets in the funds, he says “are so high quality and so short term” that they won’t move from a dollar – unless “something blows up.”
Josh Siegel, managing principal of StoneCastle Partners, also feels Goldman’s announcement will not mean too much. “It’s a cosmetic, no-cost step to put forth the appearance that they’re being more transparent,” Mr. Siegel says. “It’s a visual capitulation toward improvement but I don’t think it changes anything.”
Of course, as Goldman itself points out, disclosing the market value of money market funds isn’t new. All MMFs are required to by the SEC to calculate the market value NAV to the nearest hundredth of a cent on a monthly basis, which is then available to investors after two months. And before she canceled a vote on MMF reform in August last year, the SEC’s Ms. Shapiro floated the idea that money market funds use mark-to-market accounting, and publish a daily NAV.
Still some feel it’s a de facto acknowledgment that changes are coming. “I think they can feel the ground shifting under their feet,” says Lance Pan Director of Investment Research & Strategy at Capital Advisors Group. “The FSOC [Financial Stability Oversight Council] is going to force the SEC to vote” on the three proposals out there: floating NAV, capital buffer and holdbacks. “Floating NAV will be the least disruptive.”