Valuations - 😟 Had Always Been Worrisome!

O ne of the biggest challenges in Asset Management is to arrive at the fair market price of the portfolio and the assets that are being invested in. This challenge multiplies as the portfolio becomes more illiquid with few reliable sources of valuation data. Some of the biggest fund failures over the last few years like the Third Avenue Asset Management collapse have been attributed to badly mispriced securities.





In the aftermath of 2008 financial crisis Valuations of securities at Funds has been in focus with investors and regulators. Investor due diligence increasingly focuses on valuation policies, processes and models. Regulators across the globe have focussed on Valuation processes and increased their oversight of how assets are being valued. A big learning from the 2008 financial crisis was how lax some of the valuation processes had been with even the larger banks which created knock-on effects up and down the financial system.





The International Monetary Fund has flagged the alternative asset managers for potential financial stability risks due to bad valuations. They are recommending strengthening oversight through the adoption of a ‘microprudential orientation’.





The shift globally in fair value accounting and its increasing importance has forced alternative asset managers to revisit the traditional valuation approaches. Private asset valuation has always been a challenge, due to the opacity of models, inadequate public companies comps, and whimsical calibration of liquidity and marketability discounts.



