Capital Advisors Comments on Dual-NAV
Capital Advisors had its FSOC Comment Letter posted recently. It includes the paper, "A Floating Net Asset Value Substitute, Reintroducing the Dual-NAV Proposal with Shadow NAVs," and says, "We believe that mandatory disclosure of daily market value NAVs will be a significant step toward better risk transparency in money market funds. It is functionally equivalent to the FSOC/SEC's floating NAV proposal without the unnecessary operational, accounting and tax complexities. When applied along with objective liquidity gates and/or reasonable NAV buffers, the approach should sufficiently reduce systemic concerns with money market funds and address major issues from key constituents. We are opposed to resetting the unit NAVs to $100.00; however, we believe more work is needed for market value NAVs to be truly useful. We think shareholders could further benefit from analytical research that incorporates market value NAVs, but, at the same time, we urge regulators to address shareholder risk by enforcing more look-through shareholder concentration and asset flow disclosure.... Back in April 2012, we proposed to the Securities and Exchange Commission (SEC) a floating Net Asset Value (NAV) recommendation that requires money market mutual funds to report daily market value-based NAVs up to the 4th decimal place, but allows shares to be traded at NAVs rounded to the 2nd decimal place. The premise is to preserve the transactional utility of the $1.00 NAV while making share value volatility fully transparent. In essence, we believe in NAV stability through market disciplines and sound risk management rather than through amortized cost accounting or sponsor capital support. Forcing NAVs to change every day not only is cumbersome, but also ineffective, in our opinion."
