LONDON, Nov 12 (Reuters) - Aviva Investors has changed the terms of two money market funds holding assets of close to 7 billion pounds ($10.8 billion) in response to investor fears over the safety of money market investments.
Aviva Investors said on Wednesday the pricing of its Sterling and Euro liquidity funds will now be allowed to fluctuate according to mark-to-market valuations.
Previously, both funds used a constant net asset value (CNAV) policy to keep NAV stable at 1 pound per share by distributing profits to investors or using dividend yield to boost NAV should it fall. The move to a variable net asset value (VNAV) policy means the price will now vary while the yield is left untouched.
Richard Warne, Aviva Investors’ head of institutional distribution, denied the move signalled the funds were poised to ‘break the buck’, or fall below the 1 pound NAV implied by CNAV.
If a mutual fund’s NAV falls below 1 pound, investors are effectively losing money on their initial investment.
Warne told Reuters the decision was instead designed to give nervous clients more visibility over their investment and was brought about after talks with institutional investors.
Money market funds have been seen as safe investments, on a par with bank deposits, but both are now open to increased scrutiny as the financial crisis claims unexpected scalps. The Reserve Primary Fund shocked investors in the United States in mid-September, breaking the buck as NAV fell below $1 a share due to losses on debt issued by Lehman Brothers LEH.N.
Warne said the view of clients had changed in regard to money market funds.
“They’re much more focused on what the risks are of an investment... Return of capital rather than return on capital is very much the focus of their questions.”
He said investors will now get an early warning of movements in the fund. Industry convention allows CNAV funds to state net asset value as 1 pound per share even if the value falls to as little as 99.51 pence - any more and they revert to VNAV anyway.
Under VNAV, the funds will still pay out income on a monthly basis and Warne anticipates NAV will remain stable.
The value per share of the funds today will be at least 1 pound for the Sterling Liquidity Fund and 1 euro for the Euro Liquidity Fund on a mark-to-market value base.
The Aviva Investors Sterling Liquidity Fund has 6.6 billion pounds in assets under management. The euro class has 343 million euros under management. Aviva Investors, part of insurer Aviva Plc AV.L, has more than 235 billion pounds under management. (Editing by Simon Jessop)
Our Standards: The Thomson Reuters Trust Principles.