Money Fund Transparency proponent Clearwater Analytics' new Head of Comingled Fund Solutions Matt Clay writes today on Treasury website gtnews.com (note the other money fund-related stories too), "Improved Communication: A Vital Component of Money Market Fund Reform." The article says, "A deluge of suggestions for reforming and increasing regulation of money market funds still follows in the wake of the troubled credit markets.... [T]he debate about how to shore up the money fund industry continues." We excerpt some of the comments below on transparency and disclosures.
Clay says, "[V]arious groups and others have proposed controversial changes such as moving to a floating net asset value share price, requiring capital reserves and bank-like structures, requiring explicit insurance protection against impaired assets, adding FDIC-like insurance and making permanent the government guarantees. There have also been other less contentious suggestions designed to reduce risk and improve disclosure and transparency. While many of the recommendations have merit and would improve the orderly functioning of the money market industry, some crisis-recovery strategies tend toward overreaction by suggesting substantial new and potentially onerous rules, requirements and regulations."
He argues, "Even as the market awaits further regulatory direction from the U.S. Securities and Exchange Commission, one thing is clear: investors cannot rely on regulation alone to protect them. Regulation cannot replace communication. Investors need to be proactive in seeking the information and tools that will enable them to improve their investment process. Discussions about the money fund industry hinge on the need for increased communication between fund managers, investors and regulators, particularly in the form of improved transparency and reporting. In the end, more effective communication may better serve investors than more stringent regulation. The use of technology to deliver meaningful reporting and analytics will likely prove to be the most effective way for fund managers to communicate with investors and for regulators to monitor fund activities."
The gtnews.com piece continues, "Many investors, particularly larger institutions, want to monitor their fund holdings on a regular and consistent basis and would like to be able to aggregate this information with the rest of their investments, including separately managed accounts.... For the benefit of the investing public, the regulatory entities, the fund companies and investors need to come together in a meeting of the minds to tackle the key communication issues: 1) the frequency of reporting, 2) the reporting format and 3) the fund data that should be required in the reporting and disclosures. Having access to this type of information will further help investors improve compliance, risk management and other important aspects of the investment decision-making process. As the ICI states, 'it is hoped that these third-parties will use this, and other disclosure recommendations discussed in this Report, to help guide the investing public about the risk characteristics of particular money market funds.'"
Finally, Clay says, "The 'improved communication' described here is the process of turning fund data into useful information that enables investors to make better decisions about their fund investments and enables regulatory bodies to more effectively monitor the market. Improved communication creates a win-win scenario for all constituents. As fund managers choose to adopt these measures and provide a greater degree of transparency they will reap the benefits of improved client relationships. Transparency will instill confidence in clients, and an informed client is typically a better client than an uninformed one. Managers should see their business increase as investors choose to invest with those they know and trust. Greater transparency and disclosure may curtail the need for more onerous regulation and preserve the value of money market funds as a vital liquidity management tool. The entire money fund industry will benefit as confidence, in what has been an enormously successful product, increases."
