V-NAV MMFs may cause investor outflows warns Fitch
0Ratings agency Fitch has confirmed that it does not expect potential moves to switch all money market funds to a partial variable net asset value model to affect fund ratings.
Recommendations for the switch have been discussed, although there has to date been no regulatory proposal for the move. It would see fund assets with a residual maturity of less than three months continue to be priced on an amortised cost basis and Fitch calls it one of the “most likely outcomes of the reviews of MMF regulation taking place in Europe.” Around 50% of funds are currently valued this way. Funds not using this model use the constant net asset value model.
While funds’ ratings would remain safe, Fitch highlights that any move of this kind might cause investor uncertainty and lead to fund outflows.
“Our MMF ratings are primarily based on an analysis of the credit quality and diversification of a fund’s holdings, along with factors such as market and liquidity risks,” read a statement from the agency this week. “Therefore, a constant net asset value (CNAV) fund that switches to partial virtual NAV while maintaining the safety of principal and timely liquidity would be unlikely to face a change in rating.”
The agency already rates some partial virtual net asset value funds as AAAmmf and stated that longer-dated assets which make the difference between constant and virtual partial net asset value account for only 10-20% for most of the funds in question.
