Jayme profile image displayValuation is mission critical to investment funds and policy makers indicate that failing in this area contributed significantly to the recent financial crisis. To protect the customer, efforts to harmonize and institutionalize best practice Valuation standards must be put in the spotlight.

With hedge fund managers now subject to similar scrutiny as the traditional investment funds and new transparency requirements embedded in the post-crisis regulatory response, we must keep an eye on fund valuation dynamics and the ever-changing landscape. Might there be commonalities between the valuation regulations across different jurisdictions? 

With IOSCO attemps to successfully implement a globallly recognized system, is the idea even possible?

The Global Regulation Matrix

IOSCO has produced some global valuation principles for both Hedge Funds and Collective Investment Schemes (CIS), but these are only guidelines. The organizations have made it clear that implementation will vary by jurisdiction.

The European Union has two main Directives addressing investment funds – UCITS for traditional retail funds and Alternative Investment Fund Managers Directive (AIFMD) for hedge funds and private equity. Equivalent legislation in the US is the Investment Company Act of 1940 (commonly known as the 40 Act), which governs mutual funds and Dodd-Frank in 2010 which extended regulations to private funds. The fund valuation regime in Asia is still largely a local patchwork, but efforts to create a UCITS-like passport for fund marketing are proceeding. 

"Valuation professionals struggle when it comes to consistency across geographic regions. Many major fund groups are forced to deal with different valuation standards." 

Consistency and Discord between Geographic Regions

Valuation professionals struggle when it comes to consistency across geographic regions. Many major fund groups are forced to deal with different valuation standards. The US 40 Act is well developed and proven worldwide. The SEC consider these standards a best practice benchmark. European fund valuation documentation requirements under UCITS are not as strict as those related to the 40 Act. We believe that the European AIFMD provides the most detailed guidance on asset valuation which is due for review in 2017. The Asia Region Fund Passport has harmonized operating standards, which cover valuation briefly, but the onus still remains with local regulators and management companies.

Much of the discord in fund valuation lies in the detail rather than general principles, or is a result of undefined requirements. The lack of harmonization globally means that funds and their managers, advisers and service providers will likely have to live with a complex and varied regime for some time yet. 

"The lack of harmonization globally means that funds and their managers, advisors and service providers will likely have to live with a complex and varied regime for some time yet."

Data and Reporting Challenges

According to a recent survey conducted by Voltaire Advisors commissioned by Thomson Reuters, 85 percent of the respondents have a fully documented valuation policy available for investors and regulators - perhaps surprising is that 15 percent do not!

The increase in reporting requirements and disclosures represents a major data challenge for funds. Much of the data required is either not readily available or not in the format required for the reports. Furthermore, the regulations and standards increasingly require valuation and pricing of fund assets to be much more transparent to regulators, investors and audit firms.

The Global Fund Valuation Standards Special Report is a product of extensive research and analysis undertaken by Voltaire Advisors, commissioned by Thomson Reuters. It looks into asset management operations over the last few years, supplemented by selective surveys and interviews in key segments of the industry by Thomson Reuters and other consultancy practices.

Investment funds can learn about what areas overlap with their reporting requirements and where they will need to invest time to understand different requirements. 

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During a recent webinar, panelists Olwyn Alexander of PwC, Chris Johnson of HSBC Securities Services, Sam Mulliner of Deloitte and Karl Mackelburg of Thomson Reuters share their expert advice on how to avoid conflicts of interest when valuing your assets. View the video below.

View addtional videos of clips from the webinar - Due Diligence and Documenting Policies & Periodic Reviews of Valuation.

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Imagine The End Of Spreadsheets -- Introducing Thomson Reuters Valuation Navigator

AIFMD & IFRS: Fair Value Measurement & Portfolio Valuations 

Managing Liquidity, Market & Credit Risk

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