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2018 fair valuation pricing survey
The 16th survey edition explores innovation in valuation
Investment managers are starting to make moves in adopting innovative technologies like data analytics, robotics process automation, and natural language processing. Where are investments in innovation being made and how will these technologies shape the future of valuation? The 16th edition of our fair valuation pricing survey takes a closer look.
Exploring innovation in valuation
It's hard to escape the word "innovation" these days. The business world seems to love it, along with the word "disruptors," which is often used to describe technology advancements such as data analytics, robotic process automation (RPA), cognitive machine learning, natural language processing, and blockchain. Some might suggest that if an investment manager isn't embracing or at least considering innovation, its business is probably falling behind. But is that really true? Investment managers have historically been innovators, and trends have emerged relative to the valuation process.
To learn more about innovation happening in the industry, the 16th edition of our fair valuation pricing survey (FV survey) asked participants how they're incorporating robotics, and cognitive automation, among other technologies into their valuation processes.
- Eleven percent indicated that their fund group began to use data analytics, offshoring, and/or robotic process automation to improve the efficiency, costs, and effectiveness of the valuation process in the last year—and 22 percent indicated they're exploring these ideas.
- Twenty-eight percent indicated that they had incorporated robotics into their valuation process. Examples of where robotics have been used to automate valuation processes/workflow include the identification of price exceptions, back-testing analysis, and for other periodic analysis and reporting.
- The FV survey noted that no participants had incorporated cognitive automation beyond the use of natural language processing.
To explore other highlights from the FV survey and areas where innovation is starting to emerge, download the executive summary.
The risks of innovation
Innovation carries with it some risks especially when it involves becoming more dependent on external parties. FV survey participants identified the following difficulties relative to innovation in the valuation arena.
- Sixty-four percent highlighted that they feel like dependence on third parties was a risk.
- Twenty-eight percent identified the loss of expertise in the valuation function.
- Twenty-four percent noted that the technology was not tested frequently enough.
- Twenty percent noted the inability to properly define accountability.
These are all challenges that firms face in any innovative environment. However, the FV survey results suggest that many fund groups are aware of the challenges and are still willing to pursue change while working on mitigating these factors. While innovation in all its forms may not always be easy or fun, the process of creating something new that shows tangible benefits can be rewarding.
Investment companies continue to focus on having the right people and processes in place to achieve their best estimates of fair value for each investment. The results of the FV survey suggest several emerging areas that may be points of special focus over the coming year for management and boards, many of which relate to the exploration of greater innovation in the valuation process and the benefits and challenges that may bubble up from taking a deeper dive into uncharted waters.
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Deloitte’s fair valuation pricing survey
Regulators, standard-setting bodies, and accounting and valuation professionals have stepped up their efforts to ensure higher quality valuations. But in a world rife with change—and an industry marked by increasing complexity— understanding and addressing the various aspects of estimating and auditing fair value measurements is a growing challenge.
Deloitte's annual fair valuation pricing survey taps the expertise and insights of mutual fund investment management leaders from across the industry to gain a better understanding of the current valuation landscape. It aggregates the views of more than 85 mutual fund firms with a total of more than $5 trillion assets under management. The population of survey participants represents a diverse mix of mutual fund firms encompassing various sizes, asset classes, and geographies. The FV survey took place between July and August 2018.