Regulators on both sides of the Atlantic have been looking at ways of making the money market fund industry more robust, and one of the options they’ve focused on is moving from a stable, or constant, net asset value (CNAV) model to a floating or variable (VNAV) model.
The prospect of a move to floating NAV faltered in the U.S. in August when Securities and Exchange Commission Chairman Mary Schapiro called off a vote on proposed reforms to money-market funds that included moving to a floating NAV and imposing a capital buffer. Nevertheless, regulators in both the U.S. and Europe continue to focus on a floating NAV as a possible outcome. In October, the International Organization of Securities Commission published a report that suggested, among other things, that stable NAV funds should be converted to floating NAV where workable.
Nevertheless, this is not necessarily an obstacle. Jarno Timmerman, chief dealer at paint and coatings company AkzoNobel in the Netherlands, says the company has used a VNAV fund. “Although it was a VNAV fund, our systems were set up in a way that enabled us to account for it as though it were a CNAV fund,” Timmerman explains. “If CNAV funds had to become VNAV, that wouldn’t change the way that we use money-market funds.”
It is worth noting that floating NAV funds don’t necessarily experience price fluctuations. Since Aviva adopted the VNAV model, the valuation of its funds has never moved away from one, whether that’s £1 or 1 euro, Cookson says. And he argues that the possibility of variation should be seen as a strength, rather than a problem.