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Investit to Investigate Sound Practices for Fair Value Pricing with New Working Group

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Following requests from its investment management forum, consultancy firm Investit has indicated that it is to embark on an investigation of sound practices in pricing securities, property, OTC derivatives contracts and whole portfolios. Accordingly, the firm and the Investit Intelligence forum have established a fair value pricing working group to examine the issues around pricing in the current market.

Richard Phillipson, principal and investment practice head at Investit, explains the drivers behind the launch of a working group: “Fund managers and third party administrators feel a need to investigate policy and implementation for fair value pricing. Recent market events have caused this issue to rise to the top of the agenda and this initiative, driven by the investment community, clearly demonstrates a determination to treat clients fairly.”

The working group is comprised of representatives of a number of the 22 firms involved in the forum, including Aviva Investors, AXA Investment Managers, Baillie Gifford, Gartmore Investment Management, Henderson Global Investors, Hermes Fund Managers, HSBC Global Asset Management, JP Morgan Investor Services, Northern Trust Company, Northern Trust Global Investments, Old Mutual Asset Managers and State Street.

Fair value pricing has risen higher up the fund management agenda as an increase in market volatility and a reduction in liquidity have combined to complicate the accurate pricing of portfolios. Regulators have also been focused on this space and its implications on the risk management function have been a focus of much public debate.

In order to produce a document encapsulating the issues around pricing and develop a set of sound practices, the Investit team says it will consult depositaries, trustees, data providers and regulators as well as the Intelligence membership. According to Investit, the fair value pricing paper will define the priority issues, describe current approaches and set out practical sound practices that the Intelligence membership support.

Fund managers are required to provide a fair valuation of their clients’ assets, whether in segregated accounts or any of the wide range of pooled vehicles, from unit trusts to hedge funds. Fair value pricing is particularly important for pooled funds as the interests of existing clients must be reconciled with those buying or selling units.

The full results of the research will be published in an Intelligence paper in February 2009. Early findings will be presented at the next Investit Intelligence winter conference on 29 January in London.

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