Dimensional Writes on Nonpublic MMFs
We've covered all of the 20 largest money fund managers' "Comments on Money Market Fund Reform" to the SEC over the past month and a half, but there is just one more adviser among the 21st through 62nd largest that bothered to weigh in. Dimensional, the 25th largest manager, writes, "Dimensional Fund Advisors LP welcomes the opportunity to provide the US Securities and Exchange Commission with our views on its proposed Money Market Fund Reforms. Generally, we agree with the recommendations made by the Investment Company Institute (the 'ICI') in its April 11, 2022 comment letter. In particular, we strongly encourage the Commission to exempt nonpublic institutional prime money market funds ('Nonpublic MMFs') from any mandatory swing pricing requirements. As the ICI explains in its letter, shareholders of Nonpublic MMFs do not need special protections, because Nonpublic MMFs are generally designed for a very specific purpose -- to manage the cash of other funds in the same fund complex. Dimensional serves as the investment advisor to one such Nonpublic MMF, The DFA Short Term Investment Fund ('DSTIF'). Currently, DSTIF is offered only to Dimensional funds and is used primarily to invest the cash collateral received for securities loans made by the Dimensional funds." They explain, "Because Nonpublic MMFs are typically used as internal cash management vehicles, they simply do not face the concerns that the proposed swing pricing requirements are designed to address -- i.e., that the costs associated with meeting redemptions will incentivize shareholders to redeem quickly to avoid losses, particularly in times of market stress. DSTIF's redemptions, for example, are driven by the securities lending activities of the Dimensional funds, not by shareholders worried about a run on the fund. Furthermore, the concern that a shareholder might seek a first mover advantage does not exist in this context -- Dimensional, as the investment advisor to the Dimensional funds, owes a fiduciary duty to all of DSTIF's shareholders. Requiring Nonpublic MMFs to implement swing pricing each time the fund experiences net redemptions over a pricing period will be costly for funds and their shareholders without much, if any, corresponding benefit." Dimensional writes, "To be clear, we are not opposed to swing pricing in all cases. On the contrary, we believe swing pricing could be a useful tool for funds to prevent the dilution of the interests of non-redeeming shareholders. However, we believe that it should be up to a fund's board and advisor to determine whether implementing swing pricing is in the best interests of the fund and its shareholders. For these reasons, we believe that imposing mandatory swing pricing -- or any other mandatory anti-dilution mechanisms -- on Nonpublic MMFs is unnecessary, and we strongly encourage the Commission to exempt Nonpublic MMFs from any requirement to implement swing pricing."
