Jon Anderson, Global Head of OTC Derivatives
GlobeOp Financial Services
November 2009
Investors and the fund managers they invest with have this year turned a sharper eye toward valuations. The spotlight is especially focused on over-the-counter (OTC) derivative valuations due to their complex combination of multiple pricing models and data sources compared to the transparency and observable pricing of exchange-traded securities. Transparency into the price determination process is now a requirement for every sophisticated investor. References to valuation policies, manager marks and single-source pricing are now routine during investor due diligence and when making investment allocation decisions. Appropriateness, consistency and verification are the new watchwords.
After riding the steep drops and sharp turns of the rollercoaster in 2008, there is a distinct and certain change on the 2009 horizon. The days when investors simply trusted the veracity of their investor statements are over.
Investment committees that previously focused on analysing alpha and risk from investment managers’ figures now demand increased comfort around the accuracy of the positions and valuations underpinning net asset value (NAV) statements. Are the positions real? Are the valuations that drive NAV reflective of the market? The quest for alpha has become, in part, the quest for confidence.
