August 17, 2009
Our company wishes to offer its opposition to the proposed rules. It is our position that a stable NAV provides greater benefits to investors than those presented by a floating value.
Low interest rates have already severely impacted margins at money fund complexes. Higher legal and accounting burdens will only increase costs to the funds, while offering no significant advantage to unit holders. The inevitable consolidation that will follow in the industry will reduce competition among funds. Money fund investors may actually choose to incur greater risk in search of higher yields, which is counter to the goals of the regulations in the first place.
Floating NAV will also present an unreasonable tax burden on both individuals and institutional investors.
Institutional investors in particular will be unduly burdened by a floating NAV. A wide array of institutional operating procedures are founded on the assumption that the $1 NAV will be stable. A floating NAV will of necessity add at least one day to many institutional investment processes, because, for instance, a purchaser of securities on Day 1 will not know how much cash he has available for the purchase. He will need to liquidate on Day 1 and then purchase on Day 2.
Short term credit to municipalities would be impaired, because in many cases their only legal alternative would be in bank deposits. Pledging requirements existing in most states would make it very difficult for many banks to accept these deposits, and municipalities would be left with few if any alternatives.
Finally, a floating NAV will actually increase volatility rather than stabilize markets. Large users of money funds will seek out other means to acquire stable asset value, causing inevitable liquidations. Outflows from money funds, coupled with massive inflows into these alternative asset classes, could actually result in more bubbles and systemic risk when the intention of the proposed regulation is exactly the opposite. A floating NAV will only increase the perception of risk among retail unitholders and will actually provoke them to liquidate money fund units in a time of financial crisis, leading inevitably to the possibility of a run on the funds at precisely the time they should be available to perform their historical function as a safe haven.