Using Hindsight to Improve Insight

Capturing and evaluating risk is a growing mantra for treasurers, not only for cash investments, but across the enterprise, as well. These investors, along with regulators, have demanded more timely investment disclosures to help support their investment allocations. No investment class has made more progress on this front than money market funds, which have moved from publishing quarterly holdings on a five month lag to publishing monthly holdings with a trailing shadow NAV. Now, several fund families have announced they will publish their daily NAVs, thus promoting further transparency, with other fund families expected to follow. This is a terrific trend and we commend the leaders of this movement as it supports the concepts we proposed in a comment letter filed with the SEC in April of 2012.

So while investors’ and regulators’ disclosure demands are being met by the fund companies, corporate treasurers face significant challenges in terms of effectively interpreting the data being provided. Merely viewing a daily NAV is akin to driving with one’s eyes shut – you will feel and experience bumps in the road, but you will have no view that they are approaching. These days, vast quantities of security-level fund information are available to treasurers in a variety of formats; however, it is the interpretation of this information which makes it useful. Having pioneered technology to view and analyze risk in money market funds, we have focused on the forward view of fund stability. With the growing potential that the regulatory path may lead to floating NAVs, we believe an interpretation of future NAV stability will become a growing responsibility for treasurers.

In this month’s research, we look empirically at some of the new disclosures and their practical significance for treasurers as a predictive tool of fund stability.

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Best Regards,

Ben Campbell
President & CEO