Sat, Aug 2, 2014
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: Kyria Capital Management bets on women hedge fund managers[more]

    Bailey McCann, Opalesque New York: As hedge fund assets top $3 trillion, and long/short strategies get more crowded than ever, with every manager hunting for even the tiniest bit of alpha, a new firm has emerged that claims its own edge – women. A recent Rothstein Kass study showed women-owned a

  2. Opalesque Exclusive: Q2, H1 end positively for hedge fund performance[more]

    Bailey McCann, Opalesque New York: New hedge fund monitor data from Citi Prime Finance shows that overall, hedge funds ended the month of June and the first half of the year positively. Composite hedge fund performance, equal-weighted across funds, ranged from +0.93% to +1.73%. June-14 performa

  3. Many CTAs have become more short-volatility in the last five years[more]

    Benedicte Gravrand, Opalesque Geneva: Quantitative easing has reduced and then suppressed volatility for the last five years. So analysts at R.G. Niederhoffer Capital Management recently examined if there had been a tendency for CTAs and hedge funds to adjust their styles to become more 'shor

  4. Other Voices: Event driven strategy outlook: Broader focus required[more]

    This article was authored by Alex Gavrish, founder and CEO of Etalon Investment Research, and author of "Wall Street Back To Basics."

  5. Other Voices: Not so easy to replicate activist hedge funds and achieve similar performance[more]

    This article was authored by Alex Gavrish, founder and CEO of Etalon Investment Research, and author of "Wall Street Back To Basics." With the amount of activist investments on the rise during the last few years, more and more media at