Wed, Mar 29, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Monetary penalty for failing to obtain third party valuation on illiquid pe investments? $1m - Pluris white paper on portfolio valuations

Thursday, November 18, 2010
Opalesque Industry Update - Reputational and career damage aside, what is the monetary penalty for failing to obtain a third-party valuation on two illiquid private equity investments?

The answer is $1 million.

Brantley Capital Management recently paid this amount to settle SEC charges that the firm overvalued investments in order to charge higher investment advisory fees. Specifically, the complaint accused Brantley of making material misrepresentations and failing to make required disclosures for two investments to the board, auditors and investors.

The problem of hedge funds failing to properly value illiquid assets is so big that the SEC recently established an asset management team in its enforcement division to focus solely on hedge funds, including hedge fund valuation methods and policies.

Several fund managers have disclosed to investors that they are being questioned, including Vision Capital, RAM Capital and NIR. What they all have in common is that independent valuations would have cost a fraction of the potential losses they now face from portfolio mis-valuation.

This paper explores the hurdles of valuing illiquid securities in today’s economic environment, and how hedge fund managers can overcome them. In our experience, there are four key elements to an effective defense in the event of a valuation challenge:

1. Transparent, thorough internal valuation processes
2. Audits by a reputable auditor
3. Documentation of the valuation analyses and methods applied
4. Independent, outside validation of value estimates
This paper will walk through each of the elements and will conclude with a discussion on side pocketing practices.

The full paper may be accessed here: Source

kb

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: FS Investments launches energy fund[more]

    Bailey McCann, Opalesque New York: $19 billion Philadelphia-based FS Investments has launched a new interval fund which will invest in energy. The FS Energy Total Return Fund is the firm's first closed-end interval fund and will invest opportunistically in energy companies and assets. FS

  2. Opalesque Exclusive: Aberdeen makes the case for the lower mid-market[more]

    Bailey McCann, Opalesque New York: Aberdeen Asset Management has released a new paper focused on lower mid-market private equity. According to the paper, this segment of the private equity market is gaining popularity with private equity investors that are looking for multiple expansion and less

  3. Hedge funds await outcome of French elections, feel pinch on lower oil prices & weak dollar[more]

    Komfie Manalo, Opalesque Asia: Hedge funds felt the pinch of lower oil prices and weak U.S. dollar as the Lyxor Hedge Fund Index was marginally down as of the week ending 14 March, Lyxor Asset Management said in its Weekly Briefing. The Lyxor He

  4. Opalesque Exclusive: Swiss start-up and German fund manager to launch AI hedge fund[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: NNAISENSE, a Swiss start-up that develops artificial intelligence (AI) and machine learning applications, and

  5. Eric Mindich to shutter hedge fund Eton Park after difficult 2016[more]

    Komfie Manalo, Opalesque Asia: Erich Mindich is shutting down his hedge fund Eton Park after losing 9% in 2016 and its assets falling by $2bn to the current $7bn, Reuters reported. Mindich told investors