Evaluated Pricing

Valuations and pricing teams are facing a much higher degree of scrutiny from both the regulatory community and the investor community in the glare of the post-crisis data transparency spotlight. Fair value price transparency requirements and the gradual move towards a more harmonised accounting standards environment is set within the context of the whole debate about data quality across the financial services business, in light of incoming regulations such as Basel III and the Alternative Investment Fund Managers Directive (AIFMD). Whether it is related to risk management, pricing, trading or reporting, firms need to be able to stand behind their numbers.

The goal of the AIFMD is to create a level playing field and set basic standards for the operation of alternative investment funds in Europe via new reporting and governance requirements. On the pricing and valuations side of things, firms must establish what the directive calls “appropriate and consistent” procedures to allow for the independent valuation of a fund’s assets. In order to achieve this, the valuation must either be performed by an independent third party or by the asset manager, as long as there is functional separation between the pricing and portfolio management functions.