The rule-driven shift from constant to variable net asset value money market funds isn’t likely to protect against a flight to cash when financial market distress hits, says Moody’s Investors Service.

In a new report, the rating agency notes that global reforms for money market funds (MMF) aim to expand the use of variable net asset value (VNAV) fund structures, on the basis that their price transparency reduces the likelihood of an investor stampede out of these funds in a crisis. In theory, investors in VNAV funds will be accustomed to fluctuations in net asset value, so they may be less likely to suddenly remove money, it says.

However, Moody’s expects that, in times of financial panic, nervous investors in VNAV funds are just as likely to race to cash as investors in constant net asset value (CNAV) funds. It says that price transparency could diminish for both CNAV and VNAV funds in times of high uncertainty. And, it suggests that funds with either structure face similar difficulties in valuing assets when the market is extremely illiquid.

“The assumption that VNAV money funds are less prone to run risk is somewhat contradicted by the experience of French money funds which saw a considerable drop in assets in 2007 and 2008. The impact of the sub-prime crisis was, by far, more pronounced on French VNAV money funds than on U.S. money funds which were CNAVs,” says Vanessa Robert, a Moody’s senior credit officer and author of the report.

“We believe that in times of crisis, redemptions will occur regardless of a fund’s structure. Following the bankruptcy of Lehman Brothers in September 2008, for example, both French and US MMFs suffered declines in AUM, but both subsequently reversed these declines,” adds Robert.