The Transparency Evolution - Advocating for Money Fund Shareholders
Over the past 20 years, information flow regarding money funds has continued to increase in response to customer demand, regulatory requirements, and technological advances. As part of their 2010 Money Market Mutual Fund reform, the SEC mandated that all money market mutual funds make public their holdings at least monthly, and requiring shadow NAV information to be filed for the first time. Even with these changes, recent financial events have caused investors to seek this information more frequently than on a monthly basis—after all, important investment decisions are made daily, not monthly.
Most recently, while the sovereign debt crisis was escalating in Europe, many investors were demanding more precise information about funds’ positions in European banks and associated investments in order to assess the risk within their money fund portfolios. As a registered investment, money funds are unable to share information with one investor without making that information available to all. We agree wholly with the requirement that fund information be non-discriminatory and should not be selectively distributed to specific customers; however, we feel it is critical to provide as much information as operationally and commercially possible. Regardless of whether or not investors ultimately changed their investment decisions when they analyzed the details of their specific funds, the inability to get this information in the most timely manner proved unsettling for many. It underscored the power of one of the two greatest motivators—fear. More importantly, it highlighted an opportunity to advocate for shareholders where not doing anything would only perpetuate that fear.
We strongly believe that in the globalized world of money funds, nothing creates fear as much as not being able to answer the question of “What do I own?” or “What might I own tomorrow?” The information provided to shareholders should not only help them understand what they own now, but what they may own in the future. Reich & Tang is leading the evolution in money fund transparency by posting both portfolio holdings and its approved issuer lists for its prime funds on a daily basis.
As a Treasury professional, accumulating knowledge about short-term investments is part of what occupies your day—be it due diligence research to select a new investment or simply ensuring your current investments are within your risk tolerances. The power to make the right decisions is made easier with a full and complete understanding of what is in your fund at all times. Having access to daily portfolio holdings enables you to expedite your due diligence process and remove any concern about potential “window dressing” that could occur. Funds may look great in a snapshot at the end of the month, but wondering if they look great for the other 29 or so days of the month, particularly in times like the European debt crisis or the fallout in 2008, only serves to stoke additional fear.
At the end of the day, the dollars invested in money funds are not the adviser’s, they are the shareholders’. We work on their behalf—not the reverse. We as an industry are able to provide shareholders with this information in a manner that was simply not possible even a few years ago. Technology has enabled us to publish holdings and approved issuer lists in seconds, not days or weeks as it has been in the past. Knowing what is on the approved issuer list is another benefit to offer up to shareholders for no other reason than we can, and we should. The only pushback we would anticipate will come from other providers, not the shareholders. Providing this level of transparency builds a deeper trust between an investor and the fund’s adviser because when nothing is being withheld, all shareholders are treated equally, openly, and honestly.
The investment world is a different place since the financial crisis of 2008. In an age where consumers demand more information, the question fund companies should ask themselves is why wouldn’t they provide this information? Is withholding the information in the shareholders’ best interests? Ours? Far too many times investors have said after the fact that if only they knew or understood what was in their fund they would have made a different decision. We cannot force shareholders to look at this information, but we see no reason to keep it from them.
Nothing reduces fear more than information. This unprecedented level of transparency for shareholders provides the comfort in knowing what has been in a portfolio, what is in it now, and for the first time ever, what could be in it in the near future—every day and at any time they want. Questions about investments do not get raised only once a month, neither should answers.
If you believe in what we believe, and you believe that it is right for the industry, we welcome your support. Being a top performer comes and goes and can help to attract shareholders; however, a movement, powered by those who believe in it, will build a following. It is in this joined belief that we all truly win.