This article was provided by Bijesh Amin, Co-Founder/Managing Director at Indus Valley Partners.
To shadow or not to shadow
At least that is the question facing many large hedge funds with assets well
above the magical $1bn mark.
The production of a portfolio NAV (Net Asset Value) is the basis upon which investors pay fund managers their
performance fees on the one hand and often the basis upon which they give capital to funds on the other. The
majority of hedge funds use a Fund Administrator (e.g. Citco, GlobeOp, BNY Mellon etc.) to calculate their NAV
and in some cases perform a range of portfolio accounting functions, reconcile their trades, and prepare
Investors will often insist on the use of a fund administrator
given they can be seen as an impartial 3rd party
to value portfolios, and in light of well-documented
be a sensible requirement.
However the handing over of such a key metric such
as NAV is causing sleepless nights for many funds,
particularly those trading illiquid assets (which can be
price that can be seen from a Bloomberg terminal or
Level 3 assets in valuation parlance). Portfolio managers
may be loathe to hand over the basis on which
their performance fees are calculated to people who
do not trade the asset classes for a living and have
probably never been practically or academically
trained in the valuation of those assets.
So naturally the question arises that even if an administrator is being used, should