Big investors prefer $1-a-share money funds

By Richard Leong

NEW YORK (BestGrowthStock) – Large U.S. investors prefer that money market funds stick to a $1-a-share target, instead of letting their shares float as proposed by a government working group, two surveys released on Tuesday showed.

The surveys come several weeks before the Securities and Exchange Commission releases data that some speculate could show the net asset value (NAV) of some money funds fell below $1 per share or “broke the buck.”

A $1-per-share price has been the cornerstone for the $2.8 trillion money market fund industry. This practice has engendered the perception that money funds are only a tad riskier than bank accounts guaranteed by the government.

Supporters of the floating NAV concept have said changes in a fund’s share price gauge its riskiness.

The SEC will release the NAV of money market funds on a 60-day lagging basis, dubbed “shadow NAV.” Analysts said it was unlikely that any fund’s shadow NAV fell below $1 given that fund managers have had ample time to clean up their portfolios. The SEC voted early last year to implement this change, which was one of a series of rules about fund reforms.

Thirty-nine percent of treasurers and financial professionals said their companies will either pare or pull all cash from money funds because of the possibility of a NAV falling below $1, the Association for Financial Professionals said on Tuesday.

“There is no rational reason to stay in them,” said Brian Kalish, AFP’s director of finance practice.

Separately, 62 percent of respondents opposed floating NAV for money funds, according to a survey from Institutional Cash Distributors.

The collapse of Lehman Brothers in September 2008 led to one of the oldest U.S. money funds breaking the buck. This watershed event during the global financial crisis resulted in the Federal Reserve and other central banks taking drastic steps to save the financial system.

A series of reforms began last spring to shore up the safety of money funds. Last October, the President’s Working Group on Financial Markets recommended changes to the money fund industry including a switch to floating NAV.

But the industry and large investors including corporate and government treasurers have been vehemently opposed to abandoning the $1-a-share goal.

In a comment letter to the SEC late Monday, the Investment Company Institute, the U.S. fund industry’s main trade group, opposed the idea of floating NAV due to the likelihood many investors would abandon money funds.

The AFP survey said four out of five organizations that own money funds would likely shift at least some money out of them if a floating NAV rule is implemented.

Given the ongoing industry reform, investors have been shifting cash into bank accounts and Treasuries from money funds, according to AFP’s Kalish.

(Reporting by Richard Leong, Editing by Chizu Nomiyama)