Donohue Takes Aim at $1.00 NAV for Money Funds
In a recent speech, Buddy Donohue, the Director of the Division of Investment Management, called for an end to the $1.00 NAV for money market funds, arguing for a $10.00 NAV or a floating NAV. He argued that the $1.00 NAV fails to achieve the twin goals of liquidity and capital preservation because the $1.00 NAV (i) is insensitive to large losses/gains that fall within pricing tolerances, (ii) favors large investors who redeem ahead of small investors, thereby leaving large losses, and (iii) conceals investment losses. He indicated that “a review of the money market fund model and its regulatory regime is one of our top priorities.”
OUR TAKE: Moving away from the $1.00 NAV would be one of the most significant regulatory changes for mutual fund in several decades. We wonder whether investors, after reading Mr. Donohue’s blunt indictment, will gravitate toward other cash products.