BOSTON/WASHINGTON (Reuters) - The largest U.S. money-market funds reported “shadow prices” at $1 per share or more on the first day of a new federal reporting requirement, an outcome that analysts said should reassure investors shaken by the ride some funds took during the financial crisis.
Factors like interest rate changes mean money fund shares can be worth slightly more or less than $1 each. Funds can value themselves at $1 per share even if their underlying securities are worth between $0.9950 to $1.0050 per share — a level of detail known as the funds’ “shadow price”.
The figures released by the U.S. Securities and Exchange Commission on Monday also suggest some firms pumped in extra money to keep the funds above the key $1 level, with an eye on avoiding tough new regulations under discussion for the industry.
“People were well aware of the risks that a value below $1 would be misinterpreted. So from the looks of it I don’t think it’s a coincidence they’re all above that,” said Peter Crane, whose cranedata.com website follows the industry. Out of 236 taxable money funds with more than $1 billion in assets, Crane said he counted just 30 with shadow prices of $0.9999 or less.
Valuing shares at $1 apiece has been a selling point for the $2.8 trillion money fund sector because it simplifies tax consequences for investors and administrative costs for companies.
Maintaining even the $1 value proved expensive during the financial crisis. One money fund, The Reserve Primary fund, “broke the buck” and reported its net asset value fell to 97 cents, dragged down by its large stake in the collapsed Lehman Brothers investment bank.
Around the same time, other asset managers had to spend tens of millions of dollars on capital support for their own funds.
Since then the funds have faced a host of reform proposals such as the idea they abandon the $1 per share standard and the creation of a backstop to bail out funds in trouble. The industry has been wary of big changes to the instruments, which already generate little profit.
Some of the largest operators. like Federated Investors (FII.N) and Charles Schwab Corp, (SCHW.N) have had to waive hundreds of millions of dollars in investors’ fees because of low interest rates. The impact has been offset somewhat by reduced payments to brokers.
Other new requirements have already gone into effect, such as that funds hold more liquid and highly-rated securities.
Starting Monday funds also were required by the SEC to make a monthly report of the shadow price of their shares.
Filings made public by the SEC showed the shadow prices of the largest money funds as ranked by Thomson Reuters’ Lipper unit, including the ten largest, were at $1 or higher as of November 30.
These included the JPMorgan Prime Money Market fund (VPMXX.O), which listed a shadow price of $1.0000; the Fidelity Cash Reserves fund(FDRXX.O), which listed a shadow price of $1.0003; and the Vanguard Prime Money Market (VMMXX.O) fund, which listed a shadow price of $1.0003.
Of the 30 funds Crane said he found with shadow NAVs on the low side, Crane said half were at $0.9999, with only three below $0.9991.
Crane declined to name individual funds. One fund that reported such an NAV was the ProFunds Money Market ProFund (MPIXX.O). It listed a shadow price of $0.9998, according to a filing. A spokesman said executives would not comment.
But the differences did not seem likely to rattle shareholders, Crane said.
That’s also the hope of the fund industry and its trade group, the Investment Company Institute, which has been advertising the changes to investors to soothe any jitters about the new rules.
Reporting by Ross Kerber and Sarah N. Lynch; Editing by Bernard Orr