Goldman Sachs has shown itself characteristically quick to read market omens. The U.S. bank will publish the value of its money market mutual funds assets daily, rather than only months later. That's a step forward in transparency, and might also help shape reforms that watchdogs and the industry can both accept. BlackRock said later on Wednesday that it will do the same.
The improved transparency is welcome. It will give investors up-to-date data on fluctuations in the value of the assets underlying money market funds. That will prove – or disprove – the contention that the traditional steady $1 share value touted for such funds is justifiable. Knowing this on a timely basis will be particularly useful to investors during periods of stress.
The old process, under which investors had to wait at least two months to see the actual asset value supporting their investments, made it impossible for them to gauge whether their funds were safe during the 2008 upheaval. That led to panic and intervention by the U.S. government, which was desperate to stop a run before it infected the broader financial system.
Regulators have since made efforts to change the way money market funds work. But the industry has fought back. Last year, the U.S. Securities and Exchange Commission gave up trying to propose new rules after three of five commissioners rejected the suggestions of the agency's staff. The issue, however, refuses to die. The Financial Stability Oversight Council (FSOC), the U.S. uber-regulator headed by the Treasury Secretary, has pledged to pick up the baton.
Goldman seems to be coming halfway on one of the FSOC's proposals – the idea that money market funds should hold a liquidity buffer while providing investors with more information. For the industry, that's the lesser of the two evils. An alternative proposal would force the published value of funds to float rather than being set at $1 a share. That's anathema to the industry, which relies on that perception of steadiness to compete with bank deposits.
With Goldman and BlackRock on board, it will be hard for other fund managers not to follow suit. That could close the gap between the sometimes ham-fisted ideas of regulators and the hitherto dogmatic position of the industry, to the benefit of investors.