Fairholme manager defends portfolio, personnel moves, and more.
The SEC is set to propose a new round of regulations for the $2.7 trillion money market fund business, and the mutual fund industry isn't taking the news lying down. The Wall Street Journal reported the regulations could include a floating net asset value stipulation as well as new capital requirements and redemption restrictions. Any new regulations would first need to be approved by the agency's commissioners and then submitted to a public comment period.
If enacted, the changes would continue to alter an investment option that had already been overhauled by new rules during the past several years. (Here's Morningstar's take from 2010 on the previous regulations.) For example, money market funds traditionally keep their NAVs at a stable value, or $1 a share. Funds are said to "break the buck" if they drop below that threshold. That policy has historically made money market funds a perceived safe haven, at least until the Lehman Brothers collapse pushed the Reserve Primary fund, a large money market offering, under the $1 level and triggered a run on money market funds in general that was only calmed by government intervention. A floating NAV would, in effect, erase the stigma attached to breaking the buck. As with traditional open-end mutual funds, a floating NAV for money market offerings would also be a clear signal as to which ones are taking the most risk, depending on how far and frequently the NAV fluctuated away from the $1 level.
In addition, the SEC is also reportedly contemplating regulations that would ease runs on these funds. Higher capital requirements would ensure funds have enough cash to deal with redemptions. Meanwhile, shareholders reportedly will be able to only liquidate about 95% of their positions immediately before having to wait 30 days to cash out the rest.
It's too early to tell what the ultimate impact of these regulations will be or if they have a chance of passing. The mutual fund industry--and major providers of money market funds like Vanguard, Fidelity, Federated
Goldman Sachs Buys Stable Value Shop
Goldman Sachs Asset Management has acquired Dwight Asset Management, a subsidiary of Old Mutual Asset Management. Terms of the deal weren't disclosed.
The acquisition isn't large--Dwight manages or advises on $42 billion in assets compared with GSAM's $828 bilclion--but it could help the Wall Street firm expand its footprint in several ways. Dwight is a sizable player in the stable value fund universe. These funds are similar to money market offerings but typically have higher returns. They are also traditional cornerstones in defined contribution plans. GSAM has reportedly been trying to build out its DC business. The stable value products could be a selling point for plans looking to round out the conservative part of their lineups. (GSAM already offers short duration and money market options.) In addition, Dwight will continue to subadvise Old Mutual Dwight Intermediate Fixed Income
The deal fits a recent trend of GSAM filling holes in its fund lineup with acquisitions. Late last year it bought the $182 million Rising Dividend Growth ICRDX. Goldman didn't have any pure dividend-focused strategies prior to that move.
Fairholme Manager Makes His Case