After the financial crisis, the money-market fund industry did everything in its power to convince investors and regulators that their products were not dangerous and did not need reform. By most accounts, the effort was successful: Mary Schapiro’s attempts to create more transparency in money-market pricing failed spectacularly and publicly.
Today, however, Goldman Sachs Group announced it will voluntarily adopt one of the most controversial suggestions for money-market reform: It will disclose the net asset value (NAV) for its money funds on a daily basis. Goldman will still redeem shares at $1, but on any given day the value of the assets backing a share in one of Goldman’s funds could be slightly higher or—more importantly—lower. Shortly after, JPMorgan Chase said it would do the same.
What’s new here is not the fluctuations. It’s the disclosure. As of 2010, fund firms were required to disclose net asset values on a monthly basis, with a 60-day lag, long enough to render the disclosures somewhat irrelevant to a theoretically panicky investor.
“We believe that more frequent disclosure and greater transparency will benefit investors,” Goldman Sachs said in a statement. The firm did not immediately respond to a request for comment.
That’s all well and good, but this is a giant leap closer to an NAV that truly floats. The fund industry has always fought strenuously to quash that idea, saying that the fundamental appeal of money-market funds is that the share price never wavers and that anything else would be a logistical nightmare.
So what’s Wall Street up to? The move feels incremental. Because shares are still being redeemed at $1, the new disclosures won’t have an immediate practical impact. It’s unlikely that daily values will fluctuate more than a tiny fraction of a cent on any given day, if at all. At Goldman, U.S. commercial paper money-market funds are up first; daily disclosures for muni and government debt funds are slated for next week.
In other words, this is something of an experiment, albeit with hundreds of billions of dollars in money fund assets. It’s a way to get investors used to the idea of seeing a floating NAV without freaking them out too much; it’s not a huge leap from there to letting the NAV actually float, though JP Morgan told Bloomberg News it was not changing its disclosure “in anticipation of a floating net-asset value.”
If the firms get to that point ahead of their competition (and ahead of regulators), it could be lucrative. Holding the NAV stable at $1 has been an expensive proposition for asset managers these past few years, as firms have injected cash into their funds rather than show losses. The firms seem to be betting that investors can, in fact, handle the truth.