BlackRock Inc., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. are shaking up the money market fund industry.
The three companies, which rank in the top 10 in total money market fund assets, have begun -- or will soon begin -- publishing the daily net asset value of their funds. Goldman started Wednesday, J.P. Morgan will follow on Friday and BlackRock on Jan. 16.
Andrew Williams, a spokesman for Goldman, said the change was the result of clients asking for more transparency.
Last year, the Securities and Exchange Commission flirted with the idea of having money market funds disclose daily NAVs to investors, rather than the stable $1 a share, as part of a broader attempt at money market reform. It never came to a formal proposal, however, as Chairman Mary Schapiro couldn't muster enough votes.
The industry, led by its lobbying arm, the Investment Company Institute, railed against the proposal, claiming it would cause investors to flee en masse. The ICI declined to comment on the move by the big companies.
The three companies won't be going as far as actually floating the NAV. Shares will still be traded at $1, but for the first time, investors will be able to see how the value of the funds fluctuates day-to-day. Money market funds are required monthly to disclose the actual NAV, dubbed the shadow NAV, with a two-month lag.
Investors keen on watching the day-to-day movements probably aren't in for much of a show, said Peter Crane president of research firm Crane Data LLC. “You're going to see a whole lot of nines and zeros,” he said.
That's because the net asset value of money market funds is allowed to fluctuate between $1.0050 and $0.9995 and still maintain its $1 per share NAV. It's rare to see a fund drop below $0.9999 though, Mr. Crane said. Out of the 785 taxable money market funds on the market today, only 16 had shadow NAVs of less than $0.9999 as of the latest filing, according to Crane Data.
“It's extremely rare that a fund deviates more than a thousandth of a cent from one day to the next. It really takes an event to move the NAV,” Mr. Crane said.
Of course, an “event” is what got money market funds to this point in the first place. The fall of Lehman Brothers Holdings Inc. in 2008 caused the Reserve Primary Fund to “break the buck” and set off a run on money market funds. That put money market reform on the table at the SEC.
It remains to be seen whether other money market fund providers will follow suit and begin disclosing daily NAVs as well, or if the changes will have any impact on potential future regulations of money market funds.
The Financial Services Oversight Committee has
released for public comment a proposal to reform money market mutual funds in November.
