(The following statement was released by the rating agency)
Feb 27 - Money market fund investors are split over whether a
move to variable net asset value (VNAV) money funds from constant net asset
value funds (CNAV) would have a large impact on their investments, a survey of
European treasurers conducted by Fitch in conjunction with Treasury Management
International (TMI) shows.
The three areas that could be affected by a move to VNAV funds are the clarity
of the investment product, the accounting and tax treatment and the risk profile
of the fund. Such a move has been proposed by regulators on both sides of the
The greatest concern for the industry is that 27% of respondents think moving to
a VNAV product will result in a loss of clarity with a further 42% undecided.
Part of the problem here is the lack of VNAV funds in some regions, such as the
UK, leaves investors unfamiliar with how the funds work.
On the accounting and tax side, 42% of respondents said the switch would have a
significant or material change, while 47% said it would have a marginal or zero
impact.11% were still unsure. This substantial split most likely reflects the
users of the funds.
Corporate treasurers that have adopted a "deposit-like" treatment of CNAV funds
may experience problems by the change. For example, cash and cash equivalent
accounting systems will typically use a minimum unit value of 1, which means
negative values - caused by a drop in the net asset value of a fund - will cause
problems. Likewise, they won't be able to record capital losses due to mark to
market volatility in accounting and tax treatments. We believe the problem will
be muted by the accrual accounting rules applied to short-term assets as is the
case with continental style VNAV funds, and which prevents the value of the
short-term assets changing significantly unless there are credit events.
The third area is in the risk profile of the fund. 31% of respondents thought
that an advantage of the CNAV style of funds was that it forced the fund manager
to be prudent. Additionally 36% of respondents thought VNAV rules could be used
to hide capital losses and 25% thought VNAV funds were less clear and generally
more risky. This makes clear the need for a sound transition and the upholding
of consistent risk profiles and self-imposed guidelines.
The full results are available in the European Treasury Survey 2013 special
report at www.fitchratings.com. 68 European treasurers responded to the survey.
The bulk of the respondents were corporate treasurers (76%), local authorities
(9%) and banks (6%). Half of the respondents had more than USD250m of cash and a
quarter of all respondents had more than USD1bn in cash.