Out of the Shadows
January 11, 2013
Somehow, it came unexpectedly.
Goldman Sachs is showing a potential way out of the logjam on whether or not to float the net asset value of shares of money market mutual fund shares.
Before she left the Securities and Exchange Commission in December, chairman Mary Schapiro had put her weight behind the idea of a floating net asset value. Her point: Investors ought to know that the value of the assets in a money market fund fluctuates, every day. That they are not worth a "stable" $1 a share.
Her goal was to prevent another run on the funds, as occurred in September 2008, requiring a government bailout.
But the buck-a-share promise is the bedrock proposition of the money market fund, which competes for customers with the (federally insured) bank account.
"Requiring a floating NAV, for the sake of showing minute variations in value that cancel out over time, would eliminate money funds as a viable cash management tool for many users by destroying their principal liquidity function,'' argued Arnold & Porter attorney John Hawke, in a letter to Schapiro.
Now comes Goldman with an answer: Publish market values. Every day. On all money market mutual funds it offers.
The SEC currently requires funds to calculate and report a fund's market value on a monthly basis and that value then is made available to investors on a 60-day lag. Now, on Goldman's web site, investors will see those "shadow values'' at 3 p.m. every day. Not 60 days late.
Interestingly, Goldman is not doing this with any intent of ending federal attempts to pursue the idea of floating the NAV. Schapiro dropped her effort in August. U.S. Treasury Secretary Timothy Geithner, in his role as head of the Financial Stability Oversight Council, took up the cudgel and looked ready to send Schapiro's second set of proposed money fund reforms back to the SEC. But, oops. He's stepping down, too.
"We clearly think it improves the dialogue with regulators, just having more information out there,'' said David Fishman, co-head of Global Liquidity Management at Goldman Sachs Asset Management. But "that is not the primary objective.''
That business manages $856 billion for institutions and individuals around the world. This is a response to the customers that use money funds to manage their liquidity.
"What we heard loud and clear from our clients is there was a desire to have greater transparency,'' said James McCarthy, the unit's other co-head."That is the motivating step."
Goldman will keep publishing market values for its money market funds every day, regardless of what any other firm does, Fishman said. First, its U.S. funds, all by the end of this week. But its Dublin-domiciled funds as well, in the "near future."
If the rest of the industry, however, was to follow suit, money fund firms could well keep their cake.
Publishing the number that shows what the assets are worth every day, after all, gets to the core of what Schapiro wanted: to make sure investors know and understand that the value of the assets in a money fund floats.
But the share price doesn't.