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Ryan McNelley, Managing Director in the European Portfolio Valuation practice has written an article titled ‘Putting a Price on Valuation’ which has been published in Compliance Matters. Ryan warns of the stricter valuation landscape and provides examples of disciplinary actions by governing bodies such as the French Autorité des Marché Financiers (AMF) as a sign of what’s to come in regulation across the EU.
“Improper valuation practices may cause losses for investors, whether at subscription or redemption, through secondary trades or through misallocations of capital. These mishaps, in turn, can result in significant liability for any fund manager that is caught in the middle. The improper valuation of a fund's assets violates the agreement on which the fund was formed and may constitute a breach of its fiduciary duty to act in the best interests of investors,” says Ryan.
When it comes to the practices of fund firms valuating illiquid and complex assets internally, Ryan advocates creating and adhering to a transparent, rational and replicable procedure. There is also always the case for external valuation to supplement the firm's own work through either an expert validation of the firm’s valuation process, or independent valuation free from the firm’s internal interference.
Subscribers of Compliance Matters can access the full article here.