European treasurers are concerned that a move to variable net asset value (VNAV or floating NAV) for money funds would have a negative impact on the clarity of these investments, their accounting and tax treatment and their risk profile. Such a move has been proposed in the US and in Europe.
According to a survey of European treasurers by Fitch and Treasury Management International, “European Treasury Survey 2013,” 27 percent worry about a loss of clarity. Fitch says the lack of VNAV funds in some regions has left some European investor “unfamiliar with how the funds work.”
Notwithstanding this ignorance, some 42 percent of the survey respondents believe that such a switch would have a significant or material change in the funds’ tax and accounting treatment, while somewhat more – 47 percent – said it would have a marginal or zero impact.
Those who are worried could have good reason. Many cash and cash equivalent accounting systems have a minimum value of $1, so a drop below that in the NAV will cause problems.
European investors are also worried about the possible impact on the money funds’ risk profile. Thirty one percent of respondents thought that an advantage of a fixed NAV is that it forced the fund manager to be prudent. Additionally 36 percent of respondents thought VNAV rules could be used to hide capital losses and 25 percent thought VNAV funds were less clear and generally more risky.