Goldman Sachs Group, Inc. (NYSE:GS) began Wednesday disclosing the value of its money market funds on a daily rather than monthly basis, a move toward greater transparency that will likely have competitors following suit in the $2.5 trillion market.
Money market funds are considered a stable low-return investment alternative to bonds, but negative fluctuations of the asset value can lead to investors pulling their money, so fund managers have been averse to daily disclosure that could lead to a run on the funds. Under current rules, the Securities and Exchange Commission discloses the asset value of these funds every 60 days.
The move to daily disclosure of the “shadow” rate -- the actual daily value of a share in this kind of mutual fund, rather than a 60-day-old one -- comes as investment banks fear tighter regulatory rules. Tighter rules could come because the government was forced to prop up the industry with a temporary guaranty program and billions in emergency liquidity in 2008 as investors fled the funds and sought refuge in Treasurys. The funds retreated from investing in commercial paper, causing the cost of borrowing for businesses to spike.
“As a leading provider of liquidity solutions, we believe that more frequent disclosure and greater transparency will benefit investors,” James McNamara, managing director and president of Goldman Sachs Mutual Funds, said in a written statement. “It is our belief that this level of transparency will also benefit the ongoing dialogue around potential regulatory changes to money market funds.”
Goldman Sachs is the eighth largest U.S.-based money fund manager with $133 billion in assets under management, according to Crane Data LLC. Other players in the market might be forced to follow suit, including Charles Schwab Corp. (NYSE:SCHW), JPMorgan Chase & Co. (NYSE:JPM) and the country’s top money market fund manager, Fidelity National Financial Inc (NYSE:FNF), which manages $420 billion in money market fund assets.
Money market fund managers are required to submit the Net Asset Value, or NAV, to the SEC every month. Under federal rules the price of a share is set at $1, but it is allowed to fluctuate between $0.9950 and $1.0050. The daily rate might not matter so much in money market funds, because the NAVs generally remain stable with minor fluctuations.
However, in 2008, one of the largest money market fund managers at the time, Reserve Primary Fund, saw its NAV dip under $1 after it invested in debt held by the now-defunct Lehman Brothers Holdings Inc., leading to investors pulling their money out. The panic spread, and it wasn’t until the federal government stepped in to stabilize the market with taxpayer funded guarantees that clamed nerves.
Since then, regulators have had their sights set on tightening rules affecting price disclosures that would probably include the daily NAV disclosure that Goldman announced it would begin doing for commercial paper money market funds on Wednesday and for other money funds in the near future. Other rules that could affect this niche in the mutual fund market include determining what kinds of assets these funds can hold and how they handle financial crises, such as the one that occurred in 2008-09.