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The Fair Value Pricing Gap Narrows

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“A more universal view of fair valuation policies and procedures exists today in the investment management industry,” writes Paul Kraft, a partner in Deloitte & Touche USA’s investment management sector and author of that firm’s recently published Fair Value Pricing Survey. “This current shift is partly due to a continued focus on fair value by small firms, as well as the prominence of third-party vendors who have emerged and helped the small firms level the playing field.”

In fact, 90% of U.S. asset managers are now using third-party pricing vendors to value foreign equities, the report found, and with the continued focus on valuation as a primary risk area, the gaps between large and small asset managers have narrowed or–in some cases–been totally eliminated, according to the 2007 Survey.

Last year, 74% of survey respondents said they used these vendors; that percentage stood at 21% in 2004. Survey respondents represented more than 50 asset managers who advise more than 2,700 funds and have assets under management exceeding $3 trillion. In addition to equities and standard fixed-income instruments, more than 60% of respondents invest in swaps, futures, options, and other funds as well.

Eighty-seven percent of respondents to the sixth edition of the Survey indicated that they review the pricing from those third-party vendors providing fair value pricing, and 86% review it for matrix pricing. “Nonetheless, large asset managers continue to devote more resources to security valuation and are more likely to use these resources to continue to ‘raise the bar’ and perform detailed analyses of certain valuation situations,” concludes Kraft.


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