Last week, the Center for Capital Markets at the US Chamber of Commerce released a report prepared by Treasury Strategies outlining the costs and operational implications of a shift to a floating net Asset value (NAV) in the money market fund industry. Unlike many other discussions of the operational costs of this potential shift, the report does not focus primarily upon (although it does discuss) the costs to fund advisers in implementing this change, but instead emphasizes the costs that various users of money market funds would likely face. For example in the section of the report dedicated to corporate treasuries, the report discusses changes that likely would be required, ranging from the development of new investment policies to the adaptation of internal investment processes to a floating NAV to accounting and tax reporting procedures, and includes discussion of the costs of system reengineering these changes would entail. The report does a similar analysis for other large institutional users of money market funds.
The report concludes that a shift to a mandatory floating NAV would likely impose $1.8 billion to $2 billion of upfront costs on institutional investors and could also create $2 billion of new annual operating costs for those investors. As a result of those costs (as well as other inefficiencies the report argues a floating NAV would create), the report concludes that “the loss of the primary benefits of MMFs – principal preservation and liquidity – coupled with the significant complexity and high cost of operational compliance resulting from a floating NAV will force many investors from the MMF marketplace.”
A copy of the report can be found here.