Tue, Jun 27, 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. Legal - Bond market concerns could scuttle Paulson's Fannie-Freddie plan[more]

    From Bloomberg.com: A hedge fund proposal for freeing Fannie Mae and Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market. The Moelis & Co. blueprint, which firms including Paulson & Co. and Blackstone Group LP sponsored,

  2. Other Voices: Are your pricing policies and procedures for less liquid instruments adequate?[more]

    Komfie Manalo, Opalesque Asia: The unrelated position mismarking incidents that quickly precipitated the closures of both Visium Asset Management and Marinus Capital have been recent focal points for market participants, but regulatory scrutiny of valuation choices for less liquid instruments is

  3. FinTech - AI hedge fund Numerai now live on Ethereum, Cryptocurrency hedge funds generate huge returns as bitcoin surges[more]

    AI hedge fund Numerai now live on Ethereum From Cryptoninjas.net: Back in February, Numerai announced numeraire (NMR), a cryptographic token to incentivize a new kind of hedge fund built by a network of data scientists. Earlier today, the Numeraire smart contract was officially deployed

  4. Investing - Advisors slash hedge fund positions, Theravance Biopharma is a top pick of investment guru Seth Klarman, As asset management industry grows a search for new revenue streams[more]

    Advisors slash hedge fund positions From Barrons.com: Financial advisors have cut wealthy clients' exposure to hedge funds by up to one third over the past 12 months, The Financial Times reports. Advisor firms in the FT's annual top-300 ranking have reduced their hedge fund allocation to

  5. Investing - U.S. hedge fund in anonymous bet against Tesco shares, Hedge funds made repeated attempts to invest in Veneto banks, Steve Cohen's Point72 takes stake in struggling electronics retailer Conn's, Hedge fund Excalibur bets Riksbank will tighten by end of year[more]

    U.S. hedge fund in anonymous bet against Tesco shares From FT.com: A $20bn New York hedge fund is using an offshore shell company to anonymously bet against the shares of the UK supermarket Tesco, raising fresh questions over the efficacy of European short selling disclosure rules.