IOSCO releases principles for the valuation of hedge fund portfolios

Date: Wednesday, March 14, 2007
Author: James Langton, Investment Executive

Regulators seek comment

The International Organization of Securities Commissions has released for comment a paper that proposes principles for the valuation of hedge fund portfolios.

The principles describe techniques which are designed to strengthen the valuation process thereby making it more likely that the resulting valuation is appropriate. They emphasize the importance of clear written procedures which are consistently operated and regularly reviewed, and which provide for an appropriate degree of independence to deliver effective checks and controls.

The chairman of the IOSCO Technical Committee, Michel Prada, said, “The chief aim of these principles is to seek to ensure that hedge funds' financial instruments are appropriately valued, in particular, that these values are not distorted to the disadvantage of fund investors. Therefore, it is extremely important, therefore, that hedge funds adopt and operate robust portfolio valuation policies and procedures”.

IOSCO notes that in recent years, hedge funds have grown enormously and now play an increasingly important role in global capital markets. The IOSCO principles are meant to be a practical tool that hedge fund managers and governing bodies, and those involved in the valuation process. They may also be helpful for institutional and sophisticated investors and their representatives, it says.

IOSCO welcomes submissions from investors and all sectors of the financial community. The closing date for comments is June 21.