AIMA updates guide on valuation best practices

Fund Administration
09 Oct, 2013

AIMA has updated its Guide to Sound Practices for Hedge Fund Valuation reflecting a number of the changes in accounting standards since the previous edition was published in 2007.

The latest edition is updated and contains the introduction of new international guidance on and disclosures of fair value accounting, as well as a summary of the valuation requirements contained in the Alternative Investment Fund Managers Directive (AIFMD).

The guide contains 16 recommendations reflecting industry sound practices on valuation covering governance, transparency, procedures, processes, systems, sources, models and methodology. It also identifies areas of hedge fund valuation that are covered by regulation and where discretion still applies.

It was produced by a committee of volunteers from the hedge fund industry, which was co-chaired by Declan Quilligan, managing director at Citco Fund Services in Ireland, and Olwyn Alexander, European hedge fund leader at PricewaterhouseCoopers(PwC).

Sound valuation practices are instrumental if hedge funds are to secure institutional capital. A Deutsche Bank prime brokerage study of operational due diligence (ODD) professionals at 68 institutional investors managing $2.13 trillion in assets revealed insufficient valuation policies at hedge funds was the main factor behind 34% of ODD investment vetoes.

It is also something investors are putting renewed focus on. Forty-six per-cent of ODD teams surveyed by Deutsche Bank confirmed valuation was their top priority for 2013, second only to regulatory compliance.

“Since the publication of the last guide in 2007, there has been a notable move away from self-administration of hedge funds to independent administration. This evolution suggests that sound practices promulgated within the guide such as independence and greater transparency that are increasingly espoused by institutional investors will continue to drive change,” said Quilligan of Citco. 

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