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IOSCO finalizes Principles for the Valuation of Hedge Fund Portfolios

Date: Tuesday, November 20, 2007
Author: James Langton, Investment Executive

 Principles aimed at strengthening controls, oversight and independence of the valuation process

The International Organization of Securities Commissions released its Principles for the Valuation of Hedge Fund Portfolios today.

The nine principles describe techniques that IOSCO says should strengthen the controls, oversight and independence of the valuation process. “They emphasize the importance of written policies which are implemented consistently and regularly reviewed,” it explains. “These measures should strengthen the valuation process thereby making it more likely that the resulting valuation is appropriate.”

IOSCO says that the principles may also be helpful for institutional and sophisticated investors in assessing the quality of the valuation framework within hedge funds.

Michel Prada, chairman of the IOSCO Technical Committee, said, “Hedge fund asset management techniques are utilized in all asset classes and across numerous jurisdictions. The valuation issues relating to investment portfolios and their importance, particularly in current market conditions, to existing and potential investors are the same across a wide range of jurisdictions.”

“The chief aim of the principles is to seek to ensure that a hedge fund’s financial instruments are appropriately valued and, in particular, that these values are not distorted to the disadvantage of fund investors,” Prada added. “IOSCO believes that investors will ultimately benefit if hedge funds follow these principles.”

The publication of valuation principles follows the launch of a public consultation paper in March on the issue, which IOSCO prepared with extensive input from industry experts.