Bloomberg News

Fidelity, Federated Cement Money Fund Shift on Values

January 11, 2013

Fidelity Investments and Federated Investors Inc. (FII:US) will make daily disclosures of the values of money-market mutual funds, cementing an industry shift to greater transparency in a product regulators say poses a threat to financial stability.

Fidelity, the biggest provider with almost $430 billion, will reveal the previous day’s closing value for all its funds beginning Jan. 16, the Boston-based company said today in a statement. Federated will do the same for five funds that invest in commercial paper by Jan. 25, Meghan McAndrew, a spokeswoman for the Pittsburgh-based firm, said in an interview. Charles Schwab Corp. (SCHW:US) will start providing daily values later this quarter, the San Fransisco-based firm said today in a statement.

Companies managing $1.5 trillion in money-fund assets, or more than half the U.S. market, have introduced the change in the past three days, increasing the pressure on the rest of the industry to follow. Goldman Sachs Group Inc. was the first to take the step on Jan. 9, followed the same day by JPMorgan Chase & Co., BlackRock Inc. (BLK:US) and Bank of New York Mellon Corp. (BK:US)

“The companies are hearing from their client base, and investors who shop among different funds want them to be on a level playing field in terms of transparency,” Michael Krasner, managing editor at money-fund research firm iMoneyNet in Westborough, Massachusetts, said in an interview.

Goldman Sachs’s decision caught competitors by surprise and angered some, said people from three money-fund providers who asked not to be named because they weren’t authorized to speak publicly on the matter. The voluntary shift means that the industry has given away a bargaining chip in the ongoing fight over money fund regulation, the people said.

Schapiro’s Plan

Regulators led by former U.S. Securities and Exchange Commission Chairman Mary Schapiro have worked to impose tighter restrictions on money funds since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. Its closure triggered a wider run on funds that helped freeze global credit markets.

The SEC enacted new rules in 2010 that introduced liquidity minimums, reduced the average maturity of holdings and set higher standards for credit quality.

Schapiro has since argued that funds are still prone to investor runs that can destabilize financial markets. Her plan to make the funds stronger would have required that funds either abandon their fixed $1 share price or adopt capital buffers to protect against losses and withdrawal restrictions to discourage rapid investor redemptions. Money-fund providers have argued that abandoning the $1 share price would destroy the appeal of the product.

A majority of SEC commissioners blocked the plan in August saying they wanted to see a more detailed study of the possible impact of those changes and of restrictions introduced in 2010.

FSOC Process

A senior panel of regulators, the Financial Stability Oversight Council, began a process in November by which it can pressure SEC commissioners to reconsider the elements of Schapiro’s plan. The panel includes the chairmen of the SEC and Federal Reserve, and is headed by the Treasury Secretary. Public comments on the panel’s draft recommendations to the SEC are due by Jan. 18.

Executives from companies including Fidelity and BlackRock jointly proposed their own plan to SEC commissioners in October for bolstering funds. It called for the industry to restrict withdrawals for funds that come under stress. It also offered to increase fund disclosure by revealing market values on a weekly basis with a five-day lag.

Money-market funds buy short-term debt securities and book them based on their expected value at maturity. They also round their share prices to the nearest 1 cent. Those practices obscure small fluctuations in the funds’ underlying holdings.

‘Shadow NAV’

The SEC’s 2010 changes forced funds to disclose each fund’s market value, or “shadow NAV,” on a monthly basis with a 60- day lag. Fidelity was among firms that initially opposed the change, saying it could confuse investors.

Federated’s largest fund included in the change is its $49 billion Prime Obligations Fund. The firm will consider daily disclosures for additional funds “depending on client demand,” McAndrew said.

“Up until this week, there had been no client demand,” she said.

Federated is the third-biggest U.S. money-fund manager with $243 billion in assets as of Dec. 31, according to research firm Crane Data LLC in Westborough, Massachusetts.

Charles Schwab’s investment unit manages about $165 billion in U.S. money-market fund assets, making it the fifth-biggest provider in the U.S., according to Crane Data.

“This will help investors understand what’s going on with their money funds,” Joan Swirsky, an attorney at Philadelphia law firm Stradley, Ronon, Stevens & Young LLP who specializes in money fund oversight, said in an interview. “Yet, when things go bad they go bad very quickly, so it remains to be seen how much of a warning this will really provide.”

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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Companies Mentioned

  • FII
    (Federated Investors Inc)
    • $30.69 USD
    • 0.25
    • 0.81%
  • SCHW
    (Charles Schwab Corp/The)
    • $30.2 USD
    • 0.80
    • 2.65%
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