After we wrote about Morgan Stanley's decision to post daily 1-day and 7-day liquidity numbers (see yesterday's "News"), we learned after the fact that Goldman Sachs Asset Management has also decided to post this daily information on just a handful of its money funds. A statement entitled, "GSAM to Disclose Daily and Weekly Liquidity for Money Market Funds, said June 28, "Effective today, Goldman Sachs Asset Management (GSAM) will begin disclosing on a daily basis the percentage of daily and weekly liquid assets for the Financial Square Money Market Funds and the VIT Money Market Fund." Below, we also cite a handful of Comment Letters on the SEC's Proposed MMF Reforms, we think the only ones worth reading are those since July 15, and many of these new ones are 401k-related with similar structure (so you only need to read some of them).
Goldman's statement explains, "Earlier this year, GSAM began disclosing market-based (or market-value) NAVs on a daily basis. At that time, we announced plans to release additional information to investors to provide additional transparency into the GSAM money market funds. The daily disclosure of daily and weekly liquidity is one more step in the process of increased transparency to our shareholders." (See the daily disclosures here: http://www.goldmansachs.com/gsam/glm/products/money-market/index.html.) We'll let you know as we discover more funds reporting this information (or enough to add it to our reports). Look for the next monthly update of MFI XLS (the final July issue should be out in another day or two), which will contain the latest percentages for fund holdings maturing in 1-day, in 2-7 days, and in the combined 1-7 days.
In other news, while the real substantive comment letters have yet to appear, there are a couple early postings on the SEC's Money Market Fund Reform Proposal that merit mentions to date. As expected, the floating NAV is taking a beating in the early polls. Below, we excerpt brief comments from Scott Smith, President, United States Conference of Mayors, Timothy Friday, President, Mid Atlantic Capital Group, Mary Covington, CTP, Administrator, Cash Management Services, Cleco Corporation, and Henry Bilyk, Senior Vice President, Farmers Trust Company.
Smith from www.usmayors.org writes, "Attached please find a resolution unanimously adopted by the nation's mayors on June 24 during our recent annual meeting in Las Vegas, which expresses opposition to the Securities and Exchange Commission (SEC) proposed changes in the Net Asset Value (NAV) rules for Money Market Mutual Funds (MMMFs) outlined in your June 5, 2013 proposal. While the Conference of Mayors is supportive of changes that will strengthen the market and improve the quality of securities, some of the changes being discussed would undermine the value and utility of MMMFs as well as the municipal bond market. On behalf of the nation's mayors, I strongly urge the SEC not to make changes to the NAV or any further regulatory changes that would disrupt the existing structure and characteristics of the MMMFs and limit choices for state and local governments, businesses and other investors."
Friday's letter tells us, "We are writing to express our concern about the Security and Exchange Commission's proposed rule relating to money market mutual funds, in general, and so-called "institutional prime funds" specifically. We are particularly concerned about that part of the proposal that would require institutional prime funds to value their portfolio securities on a mark-to-market rather than an amortized cost basis.... Mid Atlantic Trust Company offers custody, investment products and related services to tens of thousands of corporate sponsors of 401(k) plans. Shares of institutional prime funds, as that term is explained in the release, are offered as a primary option or as a liquidity vehicle.... Structural changes to institutional prime funds, particularly the proposal by the SEC that such funds value their shares using a variable net asset value, may result in serious disruptions to our retirement business and, in our view, create substantial confusion and concern for the plan participants."
The Cleco Corporation letter says, "[I]t is a corporation that relies on so-called institutional prime money market mutual funds ("prime funds") to assist us in efficiently and safely managing our corporate liquidity on a day-to-day basis. The cash needs and the liquidity position of our company are highly synchronized, and have been for decades, and dependent on the use of prime funds with their current configuration, particularly the ability to effect purchases and redemptions at $1.00 per share. Prime funds are an important investment choice for us, primarily because of their independent credit ratings, transparency and the diversification of risk among the securities of multiple issuers. From our perspective, moving more funds to bank deposits is not without problems in that they come with concentration and counterparty risk."
The company adds, "We are aware of the proposed rule published for comment by the Securities and Exchange Commission ("SEC") on June 5, 2013. In the proposal you requested comment on various alternatives put forth and what the implementation of some or all of them would have on the ongoing attractiveness of prime funds as sources of liquidity management. From our perspective, we can say categorically that any rule that results in the withdrawal of the ability of prime funds to value their portfolio securities at amortized cost (hence assuring in most circumstances that purchases and redemptions will not be effected at $1.00 per share), will cause us to reassess our use of such funds and, in all likelihood, curtail or substantially cut back on their use. The precision and sophistication with which we currently manage our liquidity position to maximize returns will be fractured, and the introduction of a net asset value per share computed on a mark-to-market basis (causing our cash position to fluctuate in value) will not coincide with our existing policies or systems capacities with respect to liquidity management. We are also concerned for accounting purposes about our continued ability to carry prime funds on our corporate balance sheet and classify them as cash or cash equivalents. After having reviewed the proposed rule, we disagree with the SEC's underlying premise that moving to a fluctuating net asset value would stop future runs."
Finally, the Farmer's Trust comment tells us (like some of the other letters do, so the format was likely was drafted by a fund company), "In our review of the proposed rule, we have two observations that appear to trivialize the important and complex operational changes to our retirement business model if institutional prime funds are required to discontinue using amortized cost ... [The SEC writes] 'under our proposal, the share price at which investors purchase and redeem shares would reflect single basis point variations. We do not anticipate significant operational difficulties or overly burdensome costs arising from funds pricing shares using "basis point" rounding.' Such a gratuitous comment belies the reality of the impact and has no basis in fact."
They add, "We are equally baffled by the [SEC's] comment 'We recognize that a floating net asset value may not eliminate investors' incentives to redeem fund shares, particularly when financial markets are under stress and investors a re-engaging in flights to quality, liquidity, or transparency.' In this sentence you have contradicted the basic premise on which you propose a structural change to a product that is critical to our business model and brings the critical components of a well-diversified suite of investment products to plan sponsors and plan participants. Simply put, in almost 700 pages of narrative, the Securities and Exchange Commission has failed to make the case for abandoning the amortized cost method of valuation set forth in its proposal and their implementation will cause great harm to plan sponsors and plan participants who rely on institutional prime funds as an important source of liquidity within their retirement plans. We support the alternative set forth in the proposal that would grant authority to the fund's board of directors (subject to certain conditions) to suspend redemptions for a given period of time in periods of market turbulence."
