Asset valuation: Are there enough checks and balances?

Two surveys of hedge fund managers’ portfolio valuation policies have revealed a lack of standardization, highlighting a need for stricter valuation procedures, particularly when dealing with hard-to-value assets.

Correct valuations of portfolios are essential if investors are to get information about their exact returns and, on the basis of this, the compensation that their managers should receive. The surveys, by Deloitte and by Horizon Cash Management, point to the need for more work in the area of valuation.

According to the Deloitte survey of 60 managers worldwide, only 47% reported that they used a third party to provide independent pricing valuations. If managers receive compensation based on valuations, conducting valuations purely in house obviously raises questions about conflicts of interest.

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