Four of the top 10 U.S. money-market fund providers said they’ll disclose daily fund values, pressuring rivals to follow suit as regulators consider banning the use of a constant $1 share price.
BlackRock Inc. (BLK), the world’s biggest money manager, will begin revealing daily net asset values for all its U.S. money funds on Jan. 16. Goldman Sachs Group Inc. (GS) began today to disclose the values for its funds that are eligible to purchase commercial paper, or prime funds. JPMorgan Chase & Co. (JPM) plans to take that step for all money funds, starting with prime funds on Jan. 14, and Bank of New York Mellon Corp. will make daily market values available “going forward.”
“The prime goal here is to diffuse the misperception that’s been created by regulators that fund share prices are an accounting fiction,” Peter Crane, president of research firm Crane Data LLC, said in an interview. “It’s a pretty good bet the daily values will show that market-value NAVs don’t float.”
Regulators led by former U.S. Securities and Exchange Commission Chairman Mary Schapiro have worked to impose tighter restrictions on money funds since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. Proposals to make the funds stronger have included abandoning the $1 fixed share price, an idea providers want to counter because they say it would destroy the appeal of money funds, which investors use as an alternative to holding cash.
Money-market funds buy short-term debt securities and book them based on their expected value at maturity. They also round their share prices to the nearest 1 cent. Those practices obscure small fluctuations in the funds’ market values.
Rule changes enacted by the SEC in 2010 required funds to disclose their market value, or “shadow net-asset value,” on a monthly basis, with a 60-day lag. Some providers, including Fidelity and Vanguard, opposed the change at the time, saying it could confuse investors.
SEC Chairman Elisse B. Walter, who took over from Shapiro last month, welcomed today’s announcements by the New York-based fund managers.
“Chairman Walter is encouraged when industry voluntarily takes steps to provide greater transparency for investors,” John Nester, an SEC spokesman, said in an e-mailed statement.
Fidelity Investments, the biggest U.S. money-fund manager with $420 billion in such assets, is “considering” daily disclosure of per-share market values, Stephen Austin, a spokesman for the Boston-based company, said in an interview.
Nancy Prior, Fidelity’s head of money funds, said in an October speech in Washington the firm would support more frequent disclosure of market values.
“If regulators believe that providing this information more often could improve the resiliency of the funds and the overall stability of the financial system, then we would support such disclosure,” Prior said in the speech.
Vanguard Group Inc., the fourth-biggest provider, said it wasn’t planning to increase the frequency of shadow NAV disclosure.
“We have not seen an increased demand for more frequent disclosure from our clients, who are primarily retail investors,” John Woerth, a spokesman for the Valley Forge, Pennsylvania-based company said in an e-mailed statement.
Woerth said market-value fluctuations in Vanguard’s largest money fund, the $123 billion Vanguard Prime Money Market Fund, has been “de minimus.”
Goldman Sachs’s asset-management unit was the first to announce a change in a statement today.
Crane said he doubted the practical value of disclosing the market values.
“The shadow NAVs don’t differ materially from the rounded NAVs unless something blows up, in which case you don’t see it until after it happens,” he said.
Meghan McAndrew, a spokeswoman for Pittsburgh-based Federated Investors, the second-largest money-market mutual-fund manager in the U.S., declined to comment on the firm’s plans regarding NAV disclosure.
In the run-up to the rule’s enforcement, some companies, including Charles Schwab Corp. and T. Rowe Price Group (TROW) Inc., injected cash into funds that were carrying small losses to boost their market values back to $1 before they were forced to disclose the shortfalls.
More recently, industry leaders offered to increase fund disclosure as part of a proposal made to regulators in October. That plan would require funds to reveal shadow NAVs on a weekly basis with a five-day lag.
Companies made the proposal while continuing to resist calls from Schapiro, the Federal Reserve and Treasury Department for SEC commissioners to consider approving a floating share price for funds.
Schapiro, who left the SEC in December, had planned as recently as August to propose that money funds be forced to choose to either float their share value or adopt a combination of capital buffers and withdrawal restrictions to protect against credit losses and investor runs. She shelved the proposal when three of her four fellow commissioners signaled that they would reject it.
A senior panel of regulators, the Financial Stability Oversight Council, began a process in November by which it can pressure SEC commissioners to reconsider the elements of Schapiro’s plan. The panel includes the heads of the SEC and central bank, and is headed by Treasury Secretary Timothy Geithner.
“We’re not doing this in anticipation of a floating net-asset value,” JPMorgan’s Deutsch said. “Our decision was informed by the extra scrutiny” money funds have come under since 2008. “The world changed when the Reserve Fund broke the buck and since then we’ve been making details of our holdings more accessible.”
The Reserve Primary fund fell below $1 a share, or “broke the buck,” in September 2008 because it held debt issued by bankrupt Lehman Brothers Holdings Inc. Its closing triggered a wider run on prime money funds that helped freeze global credit markets.
Goldman Sachs said it would expand the daily disclosure next week to include money funds that invest in municipal and government debt. The daily values will be available to investors on the morning after the previous day’s close.
JPMorgan manages about $233 billion in U.S. money funds, according to Crane Data, based in Westborough, Massachusetts. Goldman Sachs’s asset-management unit manages $856 billion in client money. It is the eighth-biggest provider of money-market funds in the U.S.
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