Asset Management Trade Group Holds Line on U.S. Money Fund Reforms
The asset management industry’s chief trade group said it would support temporary withdrawal restrictions for U.S. money market mutual funds, but said in comments to regulators Thursday that bigger changes are not needed to help sustain financial markets during crisis.
Standing its ground, the Investment Company Institute reiterated positions it had previously spelled out for the $2.6 trillion industry, and offered few of the compromises presented by some fund sponsors recently.
Instead, the organization – known as the ICI – outlined a more limited plan resembling one pushed by BlackRock Inc, the largest asset manager. It lets money funds put “gates” – or temporary redemption limits – in place during times of market stress, along with extra redemption fees. Coupled with reforms to the money funds in 2010, the fees would act as circuit breakers to slow heavy withdrawals, the ICI said.
“A lot of members believe that if something more is needed, this is a way to stop redemptions,” said Karrie McMillan, the ICI’s general counsel, in a telephone interview.
Other financial firms have been more flexible. Last week Charles Schwab Corp outlined a plan to let some prime money funds “float” their net asset values away from a fixed price of $1 per share, for instance, as a way to make it easier to cope with a deluge of shareholder redemptions.
McMillan said such tweaks would require sweeping accounting changes that could be hard to put into practice. Among the ICI’s biggest members are money fund sponsors Fidelity Investments and Federated Investors Inc, which have been much less enthusiastic about changes.
The ICI filed its comments to the Financial Stability Oversight Council. The risk council is led by the U.S. Treasury Department and includes officials from the Securities and Exchange Commission and the Federal Reserve.
Officials from all three bodies have been pushing for further reforms because, as major debt holders, money funds play a key role in the financial system. The industry’s problems threatened to freeze up global markets during the 2008 financial crisis.
The biggest scare came when investors rushed to pull cash from the well-known Reserve Primary Fund in the fall of 2008 because of its heavy holdings in the collapsed Lehman Brothers. The fund was unable to maintain its $1 per share value, known as “breaking the buck.” Support from other fund companies kept at least 21 prime funds from a similar fate, a later Fed study found.
Fund officials have pushed back against further rule changes, worried about driving away investors.
Last summer the fund industry successfully stalled a proposal by then-SEC chair Mary Schapiro that would have pushed money funds to abandon the $1 per share value, or create capital buffers to absorb swings in the value of fund holdings. That shifted the action to the risk council led by the Treasury Department, which in November supported plans much like the ones Schapiro offered.
A Republican member of the SEC, Dan Gallagher, has since said tax and accounting issues could be resolved to allow changes like floating NAVs.
DAILY ASSET VALUES
Lance Pan, director of investment research for Capital Advisors Group in the Boston area, said the ICI’s letter offers some subtle flexibility. Firms like Fidelity and Federated have made plans to disclose daily asset values for money funds in recent weeks, which other filings show have not varied much from $1 per share in practice, Pan noted.
The ICI seems to embrace those moves as well, Pan said, citing a section of the trade group’s comment letter in which it mentions “frequent public disclosures” of mark-to-market share prices. Those disclosures would be as useful to shareholders as a floating NAV, Pan said.
“The ICI is trying to preserve the fixed NAV at any cost, so this is their compromise,” Pan said.
(Reporting by Ross Kerber; Editing by Phil Berlowitz)
By Ross Kerber