Fri, Mar 6, 2015
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. SkyBridge opens office in Palm Beach County[more]

    Where better for a southern location than South Florida? SkyBridge Capital, which is headquartered in New York, has opened an office in Palm Beach Gardens. Palm Beach Gardens is a "Signature City" in northern Palm Beach County, with a population of around 49,000.

  2. Outlook - Philippe Jordan predicts 'alternative beta' to displace hedge funds, Stan Druckenmiller says Europe, Japan stocks will outpace U.S.[more]

    Philippe Jordan predicts 'alternative beta' to displace hedge funds From Investordaily.com.au: The disappointing performance of hedge funds in recent years is a result of "too much money chasing too little alpha", argues Capital Fund Management. Speaking to InvestorDaily, CFM partner Phi

  3. Patrick McCormack to shut down hedge fund Tiger Consumer[more]

    Komfie Manalo, Opalesque Asia: Patrick McCormack is shutting down his hedge fund Tiger Consumer Management after 15 years "to spend more time with his family," reported Reuters. Tiger Consumer ended February up 4.6% (+3.9% YTD) and assets roughly $1.4bn, reported

  4. Event-driven strategies lead hedge fund gains in February while CTA rally shows signs of fatigue[more]

    Komfie Manalo, Opalesque Asia: Hedge funds ended February on a good note (+0.8%), confirming the positive momentum witnessed since the start of the year, reported Lyxor Asset Management in its Weekly Briefing. As of the end of February, the Lyxor He

  5. Large hedge funds grow assets almost three times faster than sub $5bn funds[more]

    Komfie Manalo, Opalesque Asia: As institutional investors’ needs continue to evolve, they are increasingly looking to work with larger hedge fund managers and intermediaries who can meet their appetite for comprehensive portfolio solutions, said Barry Bausano, co-head of Global Prime Finance at D