Fund companies embrace floating NAV values voluntarily


The inability of regulators to agree last year on comprehensive reform of money market funds was a huge win for the money market industry and a huge loss for reform advocates. The fight to structurally change the money market fund industry, however, is far from over. It's quite possible that the SEC will again take up the issue. I've said that the industry would be wise to put forward some voluntary reform of its own volition to pre-empt this move.

Are we now moving in that direction?

Goldman Sachs' recently announced to start disclosing the values of its money-market funds daily rather than monthly. It became the first fund company to take such a bold step. Goldman Sachs will start by disclosing on its website the previous day's NAV of three commercial paper funds, to be followed by six government and tax-exempt funds next week. Daily NAVs on six offshore funds will be published sometime this year.

Goldman Sachs' move seemed to ignite a trend. Fidelity, the biggest money fund company, quickly followed up with an announcement that it too will reveal previous-day closing value data for all its funds beginning Jan. 16. Federated will as well for five commercial paper funds starting later this month. Charles Schwab will start follow suit sometime in the first quarter.

So what we have apparently is a voluntary breaking of the buck.

The big knock on the idea--which the SEC has proposed--is that it could lead to a run on the fund, as investors panic when the NAV drops below $1 a share. But more companies seem to be concluding just the opposite will occur. Investors will be more confident in the holdings of the fund as they watch the price fluctuate. -Jim

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