As regulators on both sides of the Atlantic look at ways to make money market funds more robust, one option they've focused on is moving from a stable, or constant, net asset value (CNAV) model to a floating or variable (VNAV) model.
Unlike stable NAV funds, floating NAV funds do not maintain a share price of $1 (or 1 euro or £1). Instead, the price fluctuates in line with mark-to-market valuations. While some believe this type of fund is less susceptible to redemptions during a liquidity crisis, the floating NAV model is unpopular among many corporate treasurers. But some funds in Europe already use this model.
Colin Cookson, managing director of global liquidity at U.K.-based Aviva Investors, argues that treasurers' concerns about a floating NAV are not justified. In 2008, following the collapse of Lehman, Aviva decided to convert all of its stable NAV funds to the floating model. "Since then we've added several billion of assets and new funds," Cookson says. "I think the main issue for investors into VNAV funds is the fear of the unknown."
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