The guide also reflects changes in accounting standards since the previous edition was published in 2007, such as the introduction of new international guidance on and disclosures of fair value accounting.
In total, the guide contains 16 recommendations that reflect industry sound practices within the areas of: governance; transparency; procedures, processes and systems; and sources, models and methodology. The guide also sets out the areas of hedge fund valuation that are now covered by regulation and those where discretion still applies.
The guide was produced by a committee of volunteers from the industry and was co-chaired by Declan Quilligan, Managing Director, Citco Fund Services (Ireland) Ltd, and Olwyn Alexander, European Hedge Fund Leader, PwC.
AIMA CEO Andrew Baker said: “New accounting standards, greater demands from investors for transparency and the post-crisis regulatory reforms are changing the way that managers, administrators and other valuation specialists manage and approach valuation. The new edition of our Guide to Sound Practices for Hedge Fund Valuation reflects these changes while also drawing a distinction between where valuation practices are now mandatory and where discretion applies.”
Declan Quilligan, Managing Director, Citco Fund Services (Ireland) Ltd, said: “As the hedge fund industry emerges from the financial crisis and with regulatory change impacting the industry more than ever, issues connected with valuation are more relevant today in 2013 than ever before.
“Since the publication of the last Guide to Sound Practices for Valuation in 2007, there has been a notable move away from self-administration of hedge funds to independent administration. This evolution suggests that sound practices promulgated within the guide such as independence and greater transparency that are increasingly espoused by institutional investors will continue to drive change. Investors and other stakeholders should feel more comfortable that the adoption of sound practices together with enhanced regulatory frameworks offers greater investor protection than before.”
Olwyn Alexander, European Hedge Fund Leader, PwC, said: “Ever since the first edition was published, this guide has proved to be a very useful tool for hedge fund managers, investors, regulators and the wider hedge fund community. Since the second version was released in spring 2007, there has been convergence in the world of accounting standards, but we have also experienced divergence in the regulatory sphere, and this new edition of the guide reflects those changes. In addition, the extreme illiquidity experienced during the financial crisis gave rise to some unique valuation challenges which are now addressed in the recommendations and ensuing guidance.”
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