Fidelity money fund clients react negatively to SEC proposals

BOSTON – Fidelity Investments, the largest money-market fund manager, recently warned U.S. regulators that more than half of its money fund clients would move all or some of their assets out of the investments if the net asset value of the funds was allowed to fluctuate.

The warning comes as the U.S. Securities and Exchange Commission weighs controversial proposals to add more regulation to the $2.7 trillion money-market fund industry. SEC Commissioner Mary Schapiro has been pushing for more reserves and to do away with the money funds’ fixed $1 net asset value.

The industry vehemently opposes more regulation.

On Tuesday, the Wall Street Journal reported that Federated Investors Inc.  Chief Executive Christopher Donahue plans to sue the SEC if the new regulations interfere with his firms’ ability to do business. Federated manages about $256 billion of money-market fund assets.

Meanwhile, in a February 3 letter to the SEC, Fidelity General Counsel Scott Goebel shared the Boston-based company’s research on how investors might react to potential reforms. Fidelity had $433 billion in money-market fund assets under management at the end of 2011, representing 10.9 million accounts among retail and institutional investors.

Reforms being considered by the SEC “could spark retail and institutional investors to pull significant amounts of assets out of money-market mutual funds, leading to unintended consequences for the financial markets and U.S. economy,” Fidelity said.