Morgan Stanley becomes the first money market fund family to begin regular publication of one of the newly proposed metrics from the SEC's Money Market Fund Reforms. Late last week, the investment manager released a document entitled, "Weighted Average Life: Enhancing Money Market Fund Transparency," which describes a new WAL figure now included alongside the traditional WAM (weighted average maturity) on the company's daily rate sheet.
The announcement says, "At Morgan Stanley Investment Management, we remain committed to delivering to our investors the highest degree of transparency into the composition of our money market funds. In accordance with this objective, we have decided to include an additional risk measure, Weighted Average Life (WAL), on our investor communications. As most investors are aware, Weighted Average Maturity (WAM) has long served as an important metric for money market fund investors evaluating different funds. As a complement to WAM, we believe that the added WAL metric will keep our investors better informed of the strategic positioning of our money market portfolios."
The MS release continues, "The traditional WAM calculation -- as defined by SEC Rule 2a-7 -- has long served investors as a basic gauge of a money market fund's maturity profile. When calculating WAM under Rule 2a-7, a fund adviser is permitted to use the interest-rate reset date, rather than a security's stated final maturity, for variable- and floating-rate securities. By looking to a portfolio's interest rate reset schedule in lieu of final maturity dates, the WAM measure effectively captures a fund's exposure to interest rate movements and the potential price impact resulting from interest rate movements."
"Because of its reliance on interest rate reset dates, WAM does not measure the risk faced by a fund required to hold its entire portfolio of securities to their final maturities. In order to provide investors with greater transparency, we are introducing WAL to supplement our WAM reporting. The WAL calculation is based on a security's stated final maturity date or, when relevant, the date of the next demand feature when the fund may receive payment of principal and interest (such as a put feature). Accordingly, WAL reflects how a portfolio would react to deteriorating credit (widening spreads) or tightening liquidity conditions. We believe that when viewed alongside WAM, the supplemental WAL disclosure will provide investors with a further degree of insight into our portfolios' structure," adds MSIM.
Finally, the piece says, "In addition to ensuring the highest possible degree of transparency for our shareholders, we are also adding the WAL measure in order to respond proactively to anticipated regulatory reforms. The U.S. Securities Exchange Commission has recently proposed a series of rule amendments designed to strengthen the regulatory framework for money market funds. Among its many proposed rule changes, the SEC has suggested funds have a maximum WAL of 120 days and thus affirmed its commitment to the disclosure of this metric. While the outcome of potential regulatory changes remains uncertain, we foresee WAL to be a standard reporting metric under a revised SEC Rule 2a-7."
Crane Data will of course be closely monitoring whether any new metrics are ultimately mandated by the SEC and whether funds decide to include these in their daily and monthly performance reports and communications. We'd love to hear feedback on whether to collect and publish any of these new measures, such as WAL, and daily and weekly liquidity, in our Money Fund Intelligence MFI XLS, or Money Fund Wisdom products, and we're preparing to track full monthly portfolio holdings as they become standardized. Finally, note that we're currently publishing an "Overnight Liquidity" and a "% Maturing in 7 Days" number for selected custom daily clients, and we've recently added Portfolio Composition and links to portfolio holdings to our monthly MFI XLS.
