2013 Fair value pricing survey, Eleventh edition
Finding the formula that fits
This report addresses how some private fund advisers are preparing for their first examination and the potential impact on your business.
It goes without saying that there is no precise formula for determining fair value and performing related oversight. Those charged with valuation responsibilities have to do what any scientist in a lab would do: pursue a course of action, measure the results, and then refine the approach, taking into account changes in internal and external factors.
Some key findings of this survey:
Policies and procedures
- Approximately 61 % of survey participants indicated that the front office is responsible for notifying fund accounting or management if it becomes aware of any market or issuer-specific events that have occurred that may affect pricing.
- 82% of survey participants indicated that they use different pricing vendors depending on the asset class.
- 55% of survey participants pursue price challenges on both primary pricing sources and secondary pricing sources.
- 53% of survey participants have a formal process in place specifying what to do when a pricing vendor reaffirms a price after the submission of a challenge.
Fair value considerations for specific investment types
- 80% of survey participants compare each day equity prices received from the primary pricing source to a secondary source.
- The S&P 500 Index remains the most common proxy used to identify situations in which the closing price for equities trading on foreign exchanges may require adjustment.
- Greater than 60% of survey participants use bid pricing exclusively.
- Depending on the asset class, between 30 and 36% of survey participants indicated that they compare daily fixed income prices received from their primary pricing source to a secondary source, whereas less than 30% of survey participants reported doing so last year.
- 80 and 82% of survey participants determine valuations for interest rate swaps and credit default swaps, respectively, based primarily on prices obtained from a pricing vendor.
- 55% of survey participants use a discount of five percent or less from the price of the registered issue of the same or similar security when the restriction on a security is three months or less.