Daily NAV reporting comes to Europe

February 2013

J.P. Morgan Asset Management (JPMAM) has begun publishing daily market-based net asset values (NAVs) for three US dollar-denominated money market funds (MMFs) in its European range.  This follows on from similar announcements in January made by a number of US asset managers.

J.P. Morgan Asset Management (JPMAM) has announced that three of its Luxembourg-domiciled US dollar-denominated European money market funds (MMFs) will begin disclosing their market-based net asset values (NAVs) per share (also known as shadow NAVs) on a daily basis.

Although this is the first such announcement in Europe, it follows on from similar announcements in January made by US asset managers BlackRock, Dreyfus (a unit of Bank of New York Mellon Corp), Goldman Sachs Asset Management, Fidelity Investments, Federated Investors Inc. (FII), Invesco and Charles Schwab Corp, as well as JPMAM.

As of 19 February, the JPMorgan Liquidity Funds - US Dollar Liquidity Fund, the JPMorgan Liquidity Funds – US Dollar Government Liquidity Fund and the JPMorgan Liquidity Funds – US Dollar Treasury Liquidity Fund will calculate their market-based NAVs per share to four decimal places at the funds’ close of each trading day and disclose it the following business day on its website.

According the JPMAM, this additional disclosure will provide investors with greater transparency regarding the market-based NAV’s fluctuation.  The market-based NAV will not impact the price at which shareholders will deal in the funds.  Distributing classes will continue to transact at $1 per share, and accumulating classes will transact at the daily price disclosed on the website.

Jim Fuell, Head of Global Liquidity EMEA at JPMAM, says that this is a further evolutionary step in providing greater transparency to help fund investors make more informed decisions about their investment choices.  “Daily disclosure of market-based NAVs will help investors better understand how day-to-day market movements or events can affect the value of the funds’ portfolios.  It doesn’t impact how we operate the funds, but hopefully the transparency gives investors a better understanding of the nature of MMF risk.”

He adds that JPMAM intends to roll out daily disclosure across its stable sterling- and euro-denominated MMFs at a later date, but a specific date has yet to be set.  He expects that other European asset managers will follow suit.

 

Added volatility?

However, opponents of daily disclosure claim it creates additional volatility in an already stressed market.  More proactive investors can look at the asset manager’s portfolio every day and either question why they are holding certain securities, or threaten to take out their cash unless the asset manager sells certain positions.  “The investors are able to second guess the portfolio managers, which isn’t always helpful,” says an industry expert who asked not to be named.  “In the past disclosure has been on a delayed basis, so that by the time an investor sees the holdings they are probably a couple of months out of date.

“If I were a portfolio manager, I would have reservations about daily disclosure.  At the end of the day, an investor is paying a manager to invest their money and there has to be a degree of trust.  An informed investor isn’t necessarily a reasonable or fair investor, and one awkward investor shouldn’t be dictating investment policy.  On the other hand, firms are very happy to be open about the investments they make.  There needs to be a balance.”

Fuell doesn’t expect this move to increase volatility in the marketplace.  “We believe that we have consistently informed investors even prior to this disclosure, as we have a substantial direct sales team who talk to clients about how we manage and run their investments.  Clients understand that constant NAV funds – ones that transact at $1/€1/£1 per share – have a level of mark-to-market volatility behind the transactional value.”

Speaking on behalf of the Institutional Money Market Funds Association (IMMFA), Secretary General Susan Hindle Barone says: “All IMMFA fund managers believe it is healthy to provide good and clear disclosure to investors.  However, not all our members agree that providing daily disclosure is appropriate.  The IMMFA Code of Practice specifies a minimum level and frequency of disclosure; it is then up to individual members if they wish to provide more information.”

A question for corporate treasurers to resolve is whether they have the capacity – in terms of time and resources – to review these daily reports.  Obviously today there are some that do and others that don’t, but Fuell believes that seeing this information on a daily basis will encourage treasurers to put in place a monitoring process that benefits them going forward.

This insight was first published on www.treasurytoday.com