In early 2005, the Alternative Investment Management Association (AIMA) announced the results of the first comprehensive global survey of hedge fund asset pricing and valuation practices.
This unique survey enhances understanding of the issues associated with valuation, as well as formulates recommendations for current practices, measuring the views of investors, hedge fund managers and hedge fund service providers regarding issues surrounding the valuation of assets held in hedge fund portfolios with particular emphasis on harder-to-value assets. The survey was conducted by AIMA and sponsored by PricewaterhouseCoopers, Bisys, CITCO, Financial Risk Management and Fauchier Partners.
Among the key findings:
- 32% of respondents reported that the pricing of illiquid instruments represents the most significant challenge with regard to portfolio valuation.
- Hard-to-value instruments represented 14% of the aggregate value of the funds managed by respondents.
- 73% of hedge fund respondents had an independent administrator to provide NAV.;
- 65% of all respondents had a value error tolerance that their firm uses before re-calculating NAV.
- 93% of administrators were fully independent from the manager.
- There was a general desire to enhance valuation practices and procedures.
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