Federated Responds to WSJ Editorial
Federated Investors writes "WSJ response: "Facts are stubborn things"", which says, "On April 19, 2014, the Wall Street Journal continued its attacks on money market funds with another editorial "A False Money Fund 'Choice'." While the editorial contained many inaccuracies and omissions, the piece singled out Federated Investors for opposing a floating NAV for money market funds (MMFs). First, anyone who has followed the debate regarding the SEC's proposed reforms should know that Federated is just one of roughly 1,400 investors, members of Congress, state and local governments, corporations, trade associations and nonprofits who submitted comments to the Commission opposing the floating NAV. We are proud to be part of a broad and bipartisan coalition supporting reforms that will preserve the funds on which tens of millions of Americans depend while also addressing the concerns of regulators. Second, the Journal editorial tries to rewrite the history of the 2008 financial markets meltdown alleging that the fund industry was the beneficiary of "taxpayer subsidies" (and Federated, by opposing a floating NAV, is looking for future handouts). Nothing could be farther from the truth. In 2008, the Treasury Guarantee Program was imposed on funds by the Treasury. No claims were made under the program and U.S. taxpayers actually earned $1.2 billion from premiums. In fact, federal law now prohibits the use of Treasury cash to support money market funds. Third, the $1 stable net asset value is neither fictional nor "fudged." Money market fund accounting conforms to GAAP and is widely used for short-duration, high-quality securities. The stable NAV resulting from amortized cost protects shareholders from onerous tax and accounting effects of miniscule fluctuations in the NAV, making the funds suitable for use as cash management vehicles. Finally, floating NAV will do nothing to address the desire of regulators to eliminate runs during a time of extreme distress in the financial markets. We fully support the SEC's avowed goal to protect investors, but there is no empirical evidence that instituting a floating NAV for MMFs will prevent a run. History shows that in times of extreme market turmoil, investors will flee to quality, regardless of the structure of the product. Federated believes that voluntary gating along with the enhanced disclosures in the SEC's proposals would benefit 56 million money market investors, capital formation and market efficiency while preserving MMFs as a viable cash management tool. Gates stop runs and facilitate equitable treatment of all shareholders. It is unfortunate that the Journal apparently does not understand that during a period of extreme market stress, the predominant reason for movement of money out of commercial paper and money market funds investing in commercial paper to U.S. Treasuries and funds investing in U.S. Treasury money market funds is safety. This reflects rational investor choice and would not be affected by a floating NAV. In the end, the editorial reminds us of the wisdom of former President John Adams, who said "facts are stubborn things." Would that the Journal adhered to this axiom." Note: Federated also reported earnings last night and will host an earnings call Friday a.m. at 9am.
