GSAM to Disclose Market Value Net Asset Values

advertisement
 January 9, 2013
GSAM to Disclose Market Value Net Asset Values
(NAVs) on Money Market Funds
Summary

Effective today, GSAM will begin disclosing the market value NAVs of its US-domiciled commercial paper or “prime”
funds on a daily basis. The funds are the Financial Square Money Market Fund, Financial Square Prime Obligations
Fund, and the VIT Money Market Fund.

This more frequent disclosure does not mean that the funds have moved to a floating NAV.

This disclosure is for informational purposes only and will not impact the way investors transact in the funds. The
funds will continue to use current amortized cost accounting NAVs, rounded to the nearest cent (currently and
historically $1.00), for transactions of fund shares.

Given the evolution of investor understanding of money market funds and continued discussion about further money
market fund regulation, we believe additional transparency will benefit fund shareholders and the market at large at
this time.

We currently plan to provide similar daily disclosure of market value NAVs for the US-domiciled municipal,
government, and Treasury funds next week, and for non-US domiciled funds in the near future.
Frequently Asked Questions
1. What is a market value NAV?
A “market value NAV” is the net asset value per share of a money market fund, where the value of all securities in the
portfolio is determined based on current available market quotations (or an appropriate substitute that reflects current
market conditions). This method is sometimes also called “mark-to-market” valuation.
The market value NAV is calculated to the nearest hundredth of a cent (or $0.0001), and is sometimes also called the
“shadow price” or “shadow NAV.”
It is important to note that the market value NAV is not the NAV at which investors purchase and redeem shares.
The calculation and disclosure of a market value NAV for money market funds is not new. In fact, every stable NAV
money market fund is required by the SEC to calculate and report a fund’s market value NAV to the nearest
hundredth of a cent (or $0.0001) on a monthly basis, which is made available to investors on a 60-day lag.
2. What is the NAV at which investors currently purchase and redeem shares?
The funds will continue to use the amortized cost NAV, rounded to the nearest cent (currently and historically $1.00),
for purposes of purchase, distribution, redemption, and repurchase of fund shares.
Money market funds that seek to maintain a stable NAV—including GSAM’s money market funds—use the amortized
cost method of valuation and penny-rounding method of pricing in calculating the fund’s NAV.
1
GSAM to Disclose Market Value Net Asset Values (NAVs) on Money Market Funds
The amortized-cost method, which approximates market value, is permitted by Rule 2a-7 under the Act for valuing
portfolio securities. Under this method, all investments purchased at a discount or premium are valued by accreting or
amortizing the difference between the original purchase price and maturity value of the issue.
In order to ensure that amortized cost method of valuation is appropriate for the funds, the SEC today requires a
fund’s Board of Directors to monitor and review differences between a fund’s market value NAV and the amortized
cost NAV. In addition, the Board must consider what action, if any, should be taken if the difference between them is
greater than $0.005 per share ($1.0050 – $0.9950).
3. Why did GSAM make the decision to disclose the money market funds’ daily market value NAV now?
As the industry and regulators work to determine the next course of action relative to money market fund reform, we
think additional transparency would be useful for fund shareholders and the market at large.
4. Will this change the way fund shareholders transact in GSAM’s money market funds?
No. We have chosen to disclose the market value NAV on a daily basis for informational purposes only. The funds’
NAV for purchase and redemptions will remain the amortized cost accounting NAV rounded to the nearest cent
(currently and historically $1.00). As always, there is no guarantee that a fund will be able to maintain an NAV of
$1.00 per share.
5. Which funds are impacted? What are your future plans for your other money market funds?
We are disclosing the daily market value NAV for GSAM’s three US-domiciled commercial paper or “prime” funds: the
Financial Square Money Market Fund, the Financial Square Prime Obligations Fund, and the VIT Money Market
Fund.
Given that most discussion about systemic risk has centered on the commercial paper fund market in the US, we
have decided as a first step to disclose those funds’ market value NAVs on a daily basis.
We currently plan to disclose the daily market value NAVs for the US-domiciled tax-exempt, government, and
Treasury funds next week. Additionally, we plan to make the same disclosure for non-US money market funds in the
near future.
6. How are securities in the funds priced under a mark-to-market valuation methodology?
The securities’ prices are primarily sourced from third-party pricing vendors according to policy prescribed by GSAM’s
Valuation Committee.
7. How does this change impact fund shareholders and their money market fund investments? Will the funds be
managed differently?
This disclosure does not impact fund shareholders’ investments or the way the funds are managed. The disclosure of
the market value NAV also does not change the NAV at which fund shareholders transact.
This change simply gives fund shareholders additional transparency and more information to understand the
underlying market value of the portfolios.
8. What is the latest update from regulators with regard to money market fund reform?
In November 2012, the Financial Stability Oversight Council (FSOC) released a proposed recommendation on
additional money market fund reform for public comment. The recommendation included several scenarios for
consideration, including a floating NAV, capital buffers, liquidity restrictions, and additional disclosure requirements.
Although the FSOC has the ability to make formal recommendations to the SEC, the FSOC does not have final
authority to change money market fund regulations; that authority resides with the SEC.
To date, the SEC has not approved moving forward with a proposal to amend Rule 2a-7.
2
GSAM to Disclose Market Value Net Asset Values (NAVs) on Money Market Funds
For additional information about the FSOC’s proposed recommendation and the overall SEC rule-making process,
please see:
http://www.goldmansachs.com/gsam/docs/fundsgeneral/general_education/economic_and_market_perspectives/fsoc
_recommendation.pdf
GSAM’s Opinion on Floating NAV
9. What is a Floating NAV?
Generally speaking, a floating NAV is an NAV that does not use amortized cost accounting methodology on all
securities in the portfolio and/or does not penny-round. It is so-called “floating” because it would move with the market
value of the underlying portfolio.
Since there has not yet been a formal recommendation or proposal by regulators for a floating NAV, a number of
aspects of a floating NAV are still unclear, including: whether amortized cost accounting would still be permitted for
securities maturing under 60 days (as permitted for other mutual funds today); whether the NAV would be $1.00 or
another amount, such as $10.00; and whether the requirement would apply to all money market funds or some subset
of funds.
10. What is GSAM’s view on Floating NAV?
This disclosure decision is not meant to be a signal that we see an inevitability of a floating NAV, nor that we endorse
a floating NAV. We are opposed to altering money market funds so dramatically that investors have fewer viable
liquidity investment options available.
Along those lines, we understand that the floating NAV currently being discussed by regulators may be troublesome
for many of our clients because of potential operational, logistical, tax, and valuation challenges, some of which the
FSOC pointed out in their proposed recommendation.
We believe that, in addition to providing fund shareholders additional transparency, this disclosure will be beneficial in
the dialogue between regulators and the industry.
3
GSAM to Disclose Market Value Net Asset Values (NAVs) on Money Market Funds
General Disclosures
Past performance does not guarantee future results, which may vary. The value of investments and the income
derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.
An investment in a money market portfolio is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although a money market portfolio seeks to preserve the value of
an investment at $1.00 per share, it is possible to lose money by investing in a money market portfolio.
A summary prospectus, if available, or a Prospectus for the Fund containing more information may be obtained
from your authorized dealer or from Goldman, Sachs & Co. by calling (retail – 1-800-526-7384) (institutional – 1800-621-2550). Please consider a fund’s objectives, risks, and charges and expenses, and read the summary
prospectus, if available, and the Prospectus carefully before investing. The summary prospectus, if available,
and the Prospectus contains this and other information about the Fund.
This material has been prepared by GSAM and is not a product of Goldman Sachs Investment Research. The views and
opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or
divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or
selling any securities. This information may not be current and GSAM has no obligation to provide any updates or
changes.
Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy,
completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and
completeness of all information available from public sources.
The website links provided are for your convenience only and are not an endorsement or recommendation by GSAM of
any of these websites or the products or services offered. GSAM is not responsible for the accuracy and validity of the
content of these websites.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to
buy, sell, or hold any security. Views and opinions are current as of January 9, 2013 and may be subject to change, they
should not be construed as investment advice.
Confidentiality
No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form,
by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the
recipient.
Goldman, Sachs & Co. is the distributor of the Goldman Sachs Funds.
© 2013 Goldman Sachs. All rights reserved.
Compliance Code: 89182.MF.MED.OTU
Date of first use: January 9, 2013
4
Download